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Project Management Methodology and Tools for Oil Field
Development: from investor point of view
Zarina Kenzhetayeva
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Dissertação de Mestrado!

Orientador na FEUP: Prof. José Coutinho Sampaio
Orientador na “Partex Services Portugal”: Maria Teresa Ribeiro, Directora de Exploração e
Produção
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F a c u ld a d e d e E n g e n h a ria d a U n iv e rs id a d e d o P o rto

2013-07-03

Project Management Methodology and Tools for Oil Field Development: from investor point of view

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Abstract
Energy is a critical source for global economy as its availability is required at almost in every
industry. In order to match the energy global demand, companies are investing a massive
capital in the execution of multinational projects. These projects if not properly planned,
organized, executed and controlled may pose a high degree of risks to the shareholders.
Besides compromising the success of a project, failures in addressing the projects risks can
leave a company with serious consequences such as loss of competitive advantage or
reputation damage.
Today oil and gas companies are facing many kinds of risks and uncertainties what makes
execution of projects increasingly complex. The ultimate goal that companies are trying to
reach is the production of hydrocarbon products in effective and cost efficient manner. This
can be achieved by ensuring that reservoir performance is enhanced, production is optimized
and project risks are reduced or eliminated.
The purpose of this work was to generate a methodology and tools that will help Partex Oil
and Gas Group to improve the current risk management process of their hydrocarbon
ventures. Being an investor of international projects, Partex does not have a direct project
management control. As a result, the project operators often follow an unstructured
methodology to risk management, which negatively impacts performance of the project and
revenues of Partex shareholders. To facilitate Partex success, a following solution was
proposed: an economic modeling framework to manage risks effectively, a structured risk
management methodology that will ensure the sustainability of projects performance and
KPIs to monitor project performance toward the target goals.

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Project Management Methodology and Tools for Oil Field Development: from investor point of view

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Acknowledgments
I would like to express my gratitude to my academic advisor, Professor José Coutinho
Sampaio, for his helpful guidance, expertise and invaluable suggestions that sufficiently
complemented this work.
My gratitude also goes to Partex Services Portugal and personally to my professional advisor
Maria Teresa Ribeiro and the excellent team I had a pleasure to work with - Margarida Bicho
and Álvaro Carvalho for the valuable feedbacks and great contribution to the success of this
dissertation project.
I would like to thank Professor João Falcão e Cunha for being an outstanding director of
MESG program and his continuous support to international students.
I also would like to thank my family – mom, dad and my brother - for their understanding,
love and encouragement during my studies.
Finally, I would like to thank Raymond Fleming for good discussions, help and support
during the way.

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Project Management Methodology and Tools for Oil Field Development: from investor point of view

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Contents
Abstract ..................................................................................................................................... ii
Acknowledgements ................................................................................................................. iii
List of Abbreviations .............................................................................................................. vi
List of Figures ....................................................................................................................... viii
List of Tables ........................................................................................................................... ix
1 Introduction ........................................................................................................................... 1
1.1 Presentation of Partex Oil and Gas Group............................................................................................ 1
1.1.1 Strategy and activities ................................................................................................................. 1
1.1.2 Group organizational structure .................................................................................................... 1
1.2 Presentation of the dissertation project ............................................................................................... 2
1.2.1 Project description ..................................................................................................................... 2
1.2.2 Project objective ........................................................................................................................ 3
1.3 Method followed in a project ............................................................................................................. 3
1.4 Limitations of research ..................................................................................................................... 3
1.5 Topics discussed and how they are organized in the report ................................................................... 4

2 State of art ............................................................................................................................. 5
2.1 Definitions of risk and risk management ............................................................................................ 5
2.2 Evolution of risk management ...................................................................................................................... 6
2.3 Risk management frameworks and standards ............................................................................................... 7
2.4 Risk management process ................................................................................................................. 8
2.5 Application of risk management tools in oil and gas industry ............................................................... 9

3 Research problem ............................................................................................................... 11
3.1 Description of the problem .............................................................................................................. 11
3.2 Presentation of the case study .......................................................................................................... 11
3.2.1 Description of the problem ....................................................................................................... 12
3.2.2 Oil extraction technology ......................................................................................................... 12
3.2.3 Contractual arrangement .......................................................................................................... 13
3.2.4 Organizational structure ........................................................................................................... 14
3.2.5 Project management process ..................................................................................................... 15
3.2.6 Risk management methodology ................................................................................................ 16
3.2.7 Case study problem .................................................................................................................. 18

4 Proposed solution ............................................................................................................... 21
4.1 Economic modeling framework ....................................................................................................... 21
4.2 Risk management framework .......................................................................................................... 22
4.3 Performance measurement metric .................................................................................................... 22

5 Application of the proposed solution to the case study .................................................. 23
5.1 Economics and fiscal regime modeling ...................................................................................................... 23
5.2 Economic model as a tool to analyze project's deviations .......................................................................... 25
5.3 Analysing impact of deviations on project's economics ............................................................................. 31
5.4 Economic model as a tool to perform a sensitivity analysis ....................................................................... 33
5.5 Risk management framework ..................................................................................................................... 34
5.5.1 Plan risk management .............................................................................................................. 35
5.5.2 Risk identification ................................................................................................................... 35

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................................................. 64 APPENDIX J: Summary of Case Scenarios (input and output variables) ...6.......... 52 APPENDIX A: Organizational structure of case study project ............................................................................. 55 APPENDIX C: Case study risks evolution (2006-2010) .................................................... 50 References ......................................................................................................... 61 APPENDIX G: Economic model output ................... 62 APPENDIX H: Example of case study fiscal regime calculations .............................1!Characteristics of KPIs ..............5..................................................................................................6..................................................................................................................................3 KPIs targets and KPIs measurement ................................................................................................... 68 APPENDIX M: Identified risk factors (2014) .... 48 6 Conclusions and recommendations for future projects .................. 45 5.................................................................. 41 5.................5.....Project Management Methodology and Tools for Oil Field Development: from investor point of view ! 5....................................................................... 70 APPENDIX N: Qualitative analysis of identified risks (2014) ..............................................5..................6............................... 38 5..... 45 5.............................6 Monitor and control risks . 73 APPENDIX O: Proposed KPIs and sub-KPIs ......................................................... 75 ! ! v ..........................................5........................................ 63 APPENDIX I: Economic model assumptions .................................. 67 APPENDIX L: Benchmarking of risk factors (oil and gas majors) .. 45 5........ 66 APPENDIX K: Application of RBS tool to the Oman oil field project .......................2 Categories of KPIs ..........................................................................................................................................................6 Project performance measurement: Key Performance Indicators ......................................................................................................5 Plan risk response ......4 Quantitative risk analysis ....... 44 5................... 60 APPENDIX F: Economic model calculations ........................................................................ 58 APPENDIX E: Economic model input data . 43 5....3 Qualitative risk analysis ................... 54 APPENDIX B: Case study project management process ....................................................................................... 56 APPENDIX D: Case study risks evolution (2010-2013) ..............................................................................................

Project Management Methodology and Tools for Oil Field Development: from investor point of view ! List of Abbreviations API American Petroleum Institute APM Association for Project Management BBL Barrel BG British Gas BOE Barrel of Oil Equivalent BP British Petroleum BSI British Standards Institution CAPEX Capital Expenditures E&P Exploration and Production EOR Enhanced Oil Recovery FDP Field Development Plan FEED Front-End Engineering Design FERMA Federation of European Risk Management Associations FEUP Faculdade de Engenharia da Universidade do Porto IEC International Electrotechnical Commission IRM Institute of Risk Management IRR Internal Rate of Return ISO International Organization for Standardization JMC Joint Management Committee JOA Joint Operating Agreement JOC Joint Operating Committee KPI Key Performance Indicator MAUT Multi-Attribute Utility Methodology MBOPD Thousand Barrels of Oil per Day ! vi .

different geological correlation tops used to subdivide the Gharif. ! vii .Project Management Methodology and Tools for Oil Field Development: from investor point of view ! MBSPD Thousand Barrels of Steam per Day MESG Mestrado em Engenharia de Serviços e Gestão MG1 Middle Gharif. UG1 and UG2A are two significant layers that are typically separately produced. different geological correlation tops used to subdivide the Gharif. UG2B Upper Gharif. MMBO Million Barrels of Oil MVC Mechanical Vapour Compressors NPV Net Present Value OGP International Association of Oil and Gas Producers OPEX Operational Expenditures PDRI Project Definition Rating Index PMBOK Project Management Body of Knowledge PMI Project Management Institute PSA Production Sharing Agreement R&D Research and Development RIMS Risk and Insurance Management Society RUMP Risk and Uncertainty Management Process UG2A.

Case Scenario 2) Figure 12 Production profile (Case Scenario 2 vs. Case Scenario 3) Figure 13 Expenditure deviations (Case Scenario 1 vs.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! List of Figures Figure 1 Organizational structure of Partex Oil and Gas Group Figure 2 Risk management process. oil price assumptions ! viii . Case Scenario 3) Figure 15 Gross revenue profile Figure 16 Partners cash flow profile Figure 17 NPV profile Figure 18 IRR profile Figure 19 NPV sensitivity analysis Figure 20 RBS for Partex ventures Figure 21 Risks sensitivity analysis Figure 22 KPIs Boundary Bar Figure 23 Case study. PMI Figure 3 Schematic well pattern Figure 4 PSA fiscal regime Figure 5 Case study. 2010 Figure 10 Economic modeling framework Figure 11 Production profile (Case Scenario 1 vs. 2006 Figure 9 Revised FDP. Case Scenario 2) Figure 14 Expenditure deviations (Case Scenario 2 vs. PSA structure Figure 6 Risk identification matrix Figure 7 Risk ranking Figure 8 Original FDP.

Project Management Methodology and Tools for Oil Field Development: from investor point of view ! List of Tables Table 1 Selected risk management standards and frameworks Table 2 NPV sensitivity analysis Table 3 Sample risk register Table 4 Defined conditions for impact scales of a risk on major Oman Oil Field project objectives Table 5 Proposed probability and impact matrix Table 6 Base case output values Table 7 Risks sensitivity analysis Table 8 Proposed KPIs (high-level) Table 9 Example of measurement Table 10 Case study oil price assumptions (forecasted) Table 11 Terms of profit oil calculations an application of the project performance ! ! ix .

Acoustic and Elastic Seismic Inversion: through the development of algorithms for geostatistical seismic inversion aiming the improvement in reservoirs characterization. organizational and managerial support to the Group on oil and gas related activities. its participations in venture projects and partners. 1. This chapter provides the insights of the hosting institution and the project itself. limitations of research and the study report structure. Nowadays the Group along with its presence in Abu Dhabi and Oman diversified the operations to other countries such as Kazakhstan. Brazil.Geosciences and seismic interpretation.Reservoir characterization and simulation. Along the years the Group developed partnerships with industry majors like ExxonMobil. . January 2008 ! ! ! 1! . applied methodology.1 Strategy and activities Partex strategy is in targeting critical know-how and technologies in its core business areas. BP.Facilities integrity and efficiency.2 Group organizational structure !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1 ! ! Partex Corporate brochure. . Partex was established in 1938 by Calouste Gulbenkian to manage his interests in the Middle East. . Shell. The Group is carrying the following activities: . Repsol. Algeria. . and others. Angola and Portugal.1.1. Sonangol. research problem and research objectives. . company undertakes some R&D programs with a purpose to develop specific knowledge and technologies in critical areas of the industry such as: .Production operations.1 Presentation of Partex Oil and Gas Group Partex Services Portugal is a management unit of the Partex Oil and Gas Group (referred in this report as simply Partex) which main objective is to provide technical. . BG.Optimization of hydrocarbon recovery. Today.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Introduction This dissertation project was executed according to the academic curriculum of the MESG program in collaboration with the enterprise Partex Services Portugal in Lisbon. Sonatrach.Reservoir management. staff seconded to the operations has become a very important element of the presence and involvement of the Group1.Field development planning. . Also. 1.Enhanced Oil Recovery (EOR): application of compositional simulation and fluid characterization techniques on the implementation of EOR projects. Petrobrás. Total. 1.

2 Presentation of the dissertation project This subchapter provides a brief description of dissertation project and outlines the main objective. management and human resources support that they require. Figure 1 shows the organizational structure of Partex Oil and Gas Group. Company participates in a number of oil and gas concessions and joint ventures as an ! ! ! ! ! 2! . management units. all the necessary advice and financial. technical. in accordance with the strategy and guidelines defined by the Holding. production and sales. Success in petroleum projects will require a combination of evolving technologies. The Group is structured in sub-holding companies. 1. responsible and profitable manner.2. concession companies and service companies that provide to the joint ventures and operating companies. It participates in joint ventures and concession agreements related to the oil and gas industry particularly in upstream activities: exploration. its sub-holding companies and management units. development. Figure 1 – Organizational structure of Partex Oil and Gas Group 1. in which Partex participates. human resources expertise and strong project management methodologies to provide investors with tools to manage and response to unforeseen changes.1 Project description Due to the global grow in the energy demand.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Partex is organized mainly by geographical areas. it can be assumed that the oil and gas industry will continue to develop through the increase in the number of exploration and production activities and joint ventures around the globe. Partex goal is to engage oil and gas businesses in an efficient.

Familiarization with the project and the hosting institution. This problem identified the interest and motivation to execute the current dissertation work. 4. In such participations. The description of the methodology is provided in the following section. 5. Literature review of existing methodologies. and in particular. applied in the project and developed collaboratively with the advisor of FEUP. Reviews and feedback from the project experts. estimation and execution2. In order to understand project management. providing only technical support activities to its partnerships and relies on the methodology and data provided by the operator.3 Method followed in the project The methodology. risks management processes of ventures where Partex acts as an investor. “Partex” does not have a direct control over the execution of the project.2. 1. 3. Such approach could bring a lot of uncertainties and risks from the investor perspective and may affect the success in the projects performance.2 Project objective The objective of the current work was established together with the advisor of Partex to address shareholders concerns in a most comprehensive manner. standards and practices. 2.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! investor where a main project operator selected by the government is in charge with project planning. 1. 1. The dissertation project was accomplished in the following order: 1. interviews with project experts. This case study allowed to analyze the implemented risk management methodology. conclusions and recommendations for the upcoming project updates and future projects.4 Limitations of research !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2 ! ! With the exception of Brasil where company operates an onshore small oil field ! ! ! 3! .1). The ultimate goal of the work was to generate a set of recommendations that can help to improve the effectiveness of Partex risk management process for its ventures in oil and gas projects and guarantee the sustainability of the business. identify the major areas of improvements and propose the respective solutions. was found as the most appropriate in order to successfully execute the research work. Development of a project schedule and a working plan. 6. 7. This objective was accomplished through the development of a methodology that aimed to provide a solution to the problem identified in the above section (Section 1. Discussion of results.2. Case study analysis. a case study from a project in the Sultanate of Oman was studied. its advantages and disadvantages. Application of the solution to the case study.

Chapter 5 – application of the proposed solution to the case study. its strategy. research objectives and methodology for project execution. Chapter 3 – description of the research problem and case study analysis.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! 1. activities and organizational structure. The implementation of the recommended framework would require time to obtain the concrete results. 1. brief introduction of the research project. ! ! ! 4! . The execution of this research was dependent on data from the project operator submitted to investors through the various workshops and meetings.5 Topics discussed and how they are organized in this report During this work all respective information and findings were structured and compiled into the following chapters: - - ! ! Chapter 1 – introducing the hosting institution where the dissertation study was carried out. Chapter 4 – presentation of the proposed solution. The practical application of the proposed solution was not possible due to the large scope of the oil and gas projects and limited time to execute a dissertation work. Chapter 2 – this chapter is dedicated to the literature review of the risk and risk management. Chapter 6 – conclusions and recommendations for projects updates and future projects. The documentation provided a narrow range and information outside of the range limit was not available for analysing. 2.

oil and gas pricing and geological success ratios” (Sholarin. and for petroleum companies it is important to study how to deal with exceeding budgetary spending and significant schedule delays. a common context of all definitions can be expressed as an “uncertainty of outcome” (Heinz-Peter Berg. Risk therefore has two components – the chance (or probability) of an event occurring and the impact (or consequence) associated with that event. and this depends on three elements. and documenting identified threats during both the planning and execution of a project (Sholarin. but not all cases. controlling. we found that this definition is quite arguable as authors like Crichton (1999) stated that “risk is the probability of a loss. therefore a convenient single measure of the importance of a risk is given by: Risk = !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3 It was a deliberate choice to focus on a risk management as it addresses the objective of the current research work. description of the risk management process. The consequence of an event may be either desirable or undesirable. Risk Literature provides many definitions of risk. Though various authors formulate a risk differently. and application of risk management tools in the oil and gas industry3. the most appropriate is the definition proposed by Sayers (2002) “risk is a combination of the chance of a particular event. 2. 2007). operating expenditures (OPEX).Project Management Methodology and Tools for Oil Field Development: from investor point of view ! 2. production rate. or the measure of project success or failure. Risk management. with the impact that the event would cause if it occurred. The project objectives. existing standards and frameworks. Definitions of risk and risk management Risk can be found almost in any industry. However. 2007). and technical performance. Willet (1951) identified risks as “the objective uncertainty as to the occurrence of an undesirable event. 2010). then risk increases or decreases respectively”. vulnerability and exposure. It varies with uncertainty and not with the degree of probability the greater the probable variation of the actual loss from the average. State of art This chapter dedicates to a literature review of the risk and risk management concepts: definition and evolution of the risk management.1. capital expenditures (CAPEX). project or organization. Petroleum industry usually deals with exploration and field development risks that brings uncertainties associated with an income and “life-cycle cost factors such as potential reserves. is intended to increase the likelihood of attaining these objectives by providing a systematic approach for analyzing. the greater the degree of uncertainty”. If any of these three elements in risk increases or decreases. on the other hand. hazard. For the current research work. In some. are often defined in terms of cost. schedule. The management of risks in oil and gas projects is often a complex subject. ! ! ! ! ! 5! .

(2) pareto distribution applied to petroleum field-size data in a play (Crovelli. ! This definition implies the existence of the process that will help to identify risks as early as possible to restrain the negative impact on the project performance that might occur. 1963) in the title of the insurance manual. 1997) ! ! ! ! ! 6! . Throughout of 1980’s and 1990’s several risk estimation methods were evolved such as: (1) lognormal risk resource distribution (Attanasi and Drew. Another description of risk management found in IEC 50 (191) (1990) and British Standards 8444 (1996) that was applied in this work is “the systematic application of management policies. In 1960’s. 1997)”. he demonstrated how to use computer simulation. risk management concepts were quite new to the oil and gas industry and started to be explored by the academic world. large companies started to use self-insurance against small risks that was covering the financial consequences of an adverse event or losses from an accident (Erlich and Becker. evaluating and controlling risk (Baker. 2. 2009). the following section will provide insights of the risk management evolution. assessment.1972). During this period governmental agencies also started to apply the analysis of risks in their assessments of oil and gas resources.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Probability × Consequence” (Kelman. Schiozer. 2013). Schiozer. In 1970’s several authors argued that decision analysis could not reduce or eliminate the risk and replace a professional judgment of geoscientists. Risk mitigation was a form of self-insurance to reduce the financial impact from natural catastrophes. managers and engineers (Suslik. and prioritization of risks followed by coordinated and economical application of resources to minimize. 2009). the era of a modern risk management started after 1955 when the term was first used by two American authors (Mehr and Hedges. The first study where risk of exploration was formally analyzed using the probability theory and modeling of sequential stages of exploration was the work of Allais (1956). Rodriguez.. instead of simplifications of risk estimation of large area (Suslik. procedures and practices to the tasks of analyzing. Risk management in the oil and gas industry also started to evolve after the World War II. In this period. Rodriguez. For better understanding the origin of risk management. This predefined that the risk management has been long associated with the market insurance to protect individuals and companies from losses associated with accidents (Dionne. In the study. 1995) and (3) fractal normal percentage (Crovelli et al. 1985). 2003).1997). monitor. Risk management Douglas W. Evolution of risk management Though risk management concepts originated from Roman and Greek times (Baker. Hubbard (2009) described risk management as a process of “identification.2. and how to apply these methods to the complex probability analysis. in particular Monter Carlo methods. and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities”.

regional or national standards body”. and as 2) a system or group of interacting. that form a complex whole (RIMS Executive report. standards and methodologies were developed in last decades. Recent studies such as Schiozer (2004) proposed to incorporate geological and economic risks with production strategy in order to 1) quantify the impact of decisions on the risk of the projects.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! (Suslik. Today techniques emphasize the importance of the following concepts: 1) quantification of value of information and flexibility. a lot of tools. Schiozer. the term framework is also used as 1) a structure for supporting the organization’s strategic and operational objectives. In RIMS report a standard is defined as “an established norm or requirement.3 Risk management frameworks and standards Due to the increased interest of the academic world in improving companies’ abilities to deal with risks and uncertainties.Guide to the Management of Business-related Project Risk British (BSI) 2004 Standards Name of the standard/framework 2000 2002 ! ! Author/Institution Risk Management Standard ! ! 7! . Schiozer (2004) strategy served as a base for techniques that today apply computer technologies to run simulations of complex reservoir models. In 1995. (2) optimization of production under uncertainty. Rodriguez. principles. 2009). usually a formal document that establishes criteria. Table 1 presents selected standards and frameworks that are globally recognized and have in common a universal understanding of what risk management methodology should cover. Rodriguez. Table 1 – Selected risk management standards and frameworks Year 2002 The Institute of Risk Management (IRM) Federation of European Risk Management Associations (FERMA) Risk Management Standard Standards Australia/Standards New Zealand AS/NZS 4360:2004: Risk Management ! Institution BS 6079-3:2000 Project Management . interrelated. Along with the term “standard”. (2) calculate the value of information. such as ideas. 2009). 2. methods. 2011). This methodology was recognized and explored later in work of several authors such as Nepomuceno (1999). (3) mitigation of risk and (4) treatment of risk as an opportunity (Suslik. as proposed by Demirmen (2001) and (3) quantify the value of flexibility. Walls made an important challenge by using multi-attribute utility methodology (MAUT) that was concerned with effects of including corporate goals and risk strategy into investment alternatives. or interdependent elements. Suslick and Furtado (2001). methods or procedures. Schiozer. processes and practices under the jurisdiction of an international.

2) Scope Management. namely: 1) Integration Management. 3) Time Management. easy guidelines and variety of universal tools that can be applied to oil and gas projects. guidelines or characteristics for activities or their results. 1997). 5) Quality Management. we will highlight one that was applied to the current work. ! ! ! ! ! 8! . The approach provides guidelines for ten (10) project management processes. which was applied in this research. Due to the different perceptions of risk.4 Risk management process The risk management process can be identified as a sequence of steps that if followed should lead “to the beneficial results and stable risk environment” (Baker. five steps were applied in British Standards BS 8444 (1996). 2004). Chapter “Project Risk Management” 2009 International Organization for Standardization (ISO) ISO 31000:2009 Risk management – Principles and guidelines Though standards mentioned in the Table 1 are highly adopted by many industries. Bostwick (1987) reduced the process to four steps. 2. rules. steps of risk management process can vary from author to author. 8) Risk Management. 9) Procurement Management. also. which is a Guide to the Project Management Body of Knowledge (PMBOK) issued by Project Management Institute. Project Management Institute risk management framework (2004) proposed the six-steps process (Figure 2). 6) Human Resources. the reason for selection of the current standard was its clear and standardized structure. 7) Communications Management. Guide to the Project Management Body of Knowledge (PMBOK) PMI identifies standard as “a document. and 10) Stakeholders Management. 1997). For example. Mehr and Hedges (1963) in their study used five steps of risk management. which provides. aimed at the achievement of the optimum degree of order in a given context” (PMI. As the focus in this study was made on a risk management methodology. Buchan (1994) in his work proposed three steps of managing the risk (Baker. established by consensus and approved by a recognized body. for common and repeated use.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Project Project Risk Analysis & Management (PRAM) Guide 2004 Association for Management (APM) 2004 Project Management Institute (PMI) Guide to the Project Management Body of Knowledge (PMBOK). 4) Cost Management. This standard provides a diversified approach and a foundation to implementation of the project management tools and practices in organizations.

This approach implies to test how sensitive the economic indicators are to a particular !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4 ! ! According to “Driver of Key Risks” of the Risk Management Standard. 3. tracking risks and evaluating risk process effectiveness throughout of a project (PMI. Risks Identification —the step of determining which risks may affect a project and documenting their characteristics. a little of studies were found about application of standards and frameworks in oil and gas projects. 2. American Petroleum Institute (API) and others that are concerned with health.Risk management process. Plan Risk Responses – the step of developing options and actions to enhance opportunities and reduce threats to project objectives. 2004). the oil and gas industry applied to their projects only selected risk management tools rather than the complete frameworks. safety and environmental regulations. 2. workforce injuries. Below is a review of several tools that are commonly used in the oil and gas projects and related to the execution of current work. IRM ! ! ! 9! . Qualitative Risk Analysis— the step of prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact.5 Application of risk management tools in oil and gas industry In a literature. Monitor and Control Risks – the step of implementation a risk response plan. It was discovered that in the oil and gas industry risk management is commonly associated with application of the specific standards that concerned with prevention of hazard risks4 such as oil spills.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Figure 2 . PMI The risk management methodology proposes the systematic execution of the following steps: 1. 6. Usually standards applied to petroleum operations are the ones from International Association of Oil and Gas Producers (OGP). 5. fatal accidents. Also. 2007). etc. Plan Risk Management – the step of identifying how to conduct risk management activities for a project. 4. Sensitivity analysis through Monte Carlo simulation A Monte Carlo Simulation used by petroleum experts in order to estimate oil and gas volumes that can be extracted from reservoirs and the expenditures need to produce these volumes. This can be explained by the fact that petroleum industry a long time “have not been a traditional area for the conventional practice of project-management techniques” (Sholarin. Quantitative Risk Analysis— the step of numerically analyzing the effect of identified risks on project objectives.

Scenarios aimed to quantify the impact of uncertainties from oil and gas development activities on project economics. The example of this tool is PetroScope developed by Deloitte. Though it is difficult to predict “what the actual development pattern would be. which offers a framework for economic analysis calculations. The ultimate goal of this technique is to provide “a visual representation of the impact the variables are expected to have on a given economic indicator” (Sholarin. ! ! ! ! ! 10! . Economic analysis and economic modeling Economic model is a support tool for the economic analysis. but the scenarios provide a reasonable basis to begin thinking about potential effects”. 2007). Economic analysis implies development and evaluation of several case scenarios for future investment decisions and budget estimations in a project.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! variable when all others are fixed at their baseline values.

2 Presentation of the case study In order to investigate a risk management process and understand the roots of projects underperformance. it can cause unfavorable consequences such as loss of the project value and damage of business relationships with partners and governments. in most of its ventures Partex acts as investor and not as operator. Research problem This chapter provides description of the problem. The case study presented in this work is dedicated to the analysis of a Partex investment in the Sultanate of Oman. political regimes. 3. On a contrary. If a project has a poor project management framework. Schlumberger online dictionary identifies operator as “the company that serves as the overall manager and decision-maker of an E&P project. Oman is a country with complex geology what makes the undertaken subsurface projects an expensive and difficult challenge. large capital investments and multi-party governance is exposing the Group to the risks in terms of cost.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! 3. adequately used project management tools can increase the chance of project success and shareholders satisfaction. we analyzed a Partex case study that includes the abovementioned pitfalls. and also provide a certain degree of control over an execution of a project schedule and budget according to the plan and shareholders expectations. Failure to address the aforesaid issues in a proactive and realistic manner may generate a negative impact on projects economics and Partex revenues. 2013).1.2. The analysis of the case study is an important part of this work as it helps to analyze in depth the problem through a real life project. This concern has been raised from a need to account and mitigate unforeseen challenges and unfavorable performance in some of the Group investments. Partex currently has a participating interest in eighteen (18) ventures around the world. case study analysis and description of the current situation in the area of project management. The combination of different geographies. which will be analyzed later in this work. and ineffective cost management. Located in a Middle East. Generally projects have partner input and potential to override clauses” (Schlumberger. 3. one of the major concerns of Partex as an investor is the effectiveness of the current project management process in its ventures. It is hereby assumed that such problem is a result of an inadequate project management methodology from the side of the operator.1 Description of the problem Capital projects in today’s oil and gas industry has a certain degree of complexity and to manage them effectively is a critical and complicated task. These projects are usually managed via joint venture agreements between national and international companies. As it was mentioned in Section 1. Oil was first ! ! ! ! ! 11! . schedule and project management. As was already mentioned. Since oil and gas projects usually need significant investments. project management tools should have a focus on predictability and reliability.

The structure of this section is as follows: firstly. enabling fluids to flow towards the production wells. 3. 3.2 Oil extraction technology The particular characteristics of the oil (heavy oil with very high viscosity) imply the application of special technics for its extraction. otherwise it will not flow. the case study problem was explained. we provided background of oil field and oil extraction technology.2. The field contains viscous. The steam is then injected into the oil bearing geological formations (oil reservoirs) through the injection wells to heat the oil presented in the porous space. was discovered over 30 years ago by one of Oman companies and has a long history of field appraisal and development study activity. At the same time the field is covered with well patterns composed by both producers and injectors. after we described a project management process and outlined a current risk management methodology. the viscosity is significantly reduced. the real name of the field is omitted in the text ! ! ! 12! . Due to the temperature increase. low gravity crude oil in the shallow Permian-age sands. then we presented contractual arrangement and organizational structure of Oman project. finally. comprising a main North structure and a smaller South structure. an initial field development plan (FDP) was issued in 1994 by the operator of the field.1 Oil field characteristics The Oman oil field5. Pattern top view Pattern side view Figure 3 – Schematic well pattern !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5 ! ! Due to the confidentiality. the oil should be heated prior to its production. Eleven appraisal and delineation wells were drilled in a period between 1985 and 1998. In addition to delineation of the field structure and reservoir development. The horizontal producers and vertical injectors used in this technological approach are shown at Figure 3. a number of the early vertical and horizontal appraisal wells were tested to evaluate reservoir productivity.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! discovered in Oman in 1964 and currently Omani fields are being explored by the national and international oil companies. Steam flood implementation is considered to be one of the best options for development of heavy oils and it consists on the following: surface facilities are implemented to heat water and produce high temperature steam. Due to the high degree of viscosity.2. On the basis of these well results. which proposed further study work and a limited development drilling.

which is usually represented by the government of the country or the national oil company. Additionally. In 2005. - Twelve vertical steam injector wells. one for each oil reservoir (3 reservoirs vertically stacked). 3. evenly distributed around the injectors (6 on each side). PSA terms frequently stipulate the establishment of a Joint Committee with representatives of all parties to oversee the implementation of the project. In this work it will not be explained the details of the different contracts but rather some insights on the current project PSA will be given. In general terms. The vertical steam injector wells cross all the three reservoirs.3 Contractual arrangement One of the distinctive features of the Oman oil field project is its contractual arrangement (fiscal regime). ! ! ! ! ! 13! . The foreign oil company is taking the exploration risks and responsibility for making all the necessary investments and as a reward is getting an entitlement to a share of the produced oil.2. Figure 4 – PSA fiscal regime The fiscal regime of a PSA is shown in Figure 4 and can be summarized as follows: - Gross revenues of the project are divided by the government and foreign oil company by shares defined under the PSA terms. Foreign company has a pre-specified portion from the gross revenues as cost recovery oil to reimburse project expenditures up to a specified cap. The oil and gas companies are usually operating in accordance with several types of agreements such as production sharing agreements (PSA). concessions. risk agreements and service contracts. The state contracts the foreign oil company (or companies) that provides technical and financial services to execute the project. the Government of the Sultanate of Oman decided to carve the Oman Oil field out of the previous concession and firmed a PSA with the following companies (contractors) presented in Figure 5. Unrecovered costs in any year are being accrued to the following year. is the owner of the oil and gas resources. The remaining of the gross revenues is called profit oil and then to be split between the government and foreign oil company by a share specified in the PSA. the PSA implies that the state.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Figure 3 illustrates the typical geometry of the patterns used in this technological approach: - Three dedicated horizontal producer wells.

Joint operations under the PSA are conducted under the terms and conditions of a Joint Operating Agreement (JOA) between all partners and supervised and directed by a Joint Operating Committee (JOC) and constituent technical committee composed of representatives from all partners. human resources and tender board.4 Organizational structure The Joint Management Committees Board and the constituent technical provide appointed members from the government and the operator company assigned governance of the PSA. and operations. The company supervision teams are in charge with supervising and managing the project and presented by: " ! ! The Joint Management Committee board consists of six voting members. Operator´s Government laws and regulations. He is supported by functional managers with key responsibilities and accountabilities in the areas of subsurface. finance. Operator corporate and Oman policies and procedures. facilities. PSA structure 3. The governance structure is primarily guided by the following: " " " " " Production sharing agreement. The JMC board is comprised of four representatives appointed by the government of Oman and ! ! ! 14! . Oman laws and regulations.2. within the operator and authorities approved framework. the organizational structure includes company supervision teams.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Figure 5 – Case study. Joint operating agreement. As you can see in the Appendix A. direct project teams and business support teams. Overall responsibility for the delivery of project objectives is vested in the vice-president of field operations.

shown in Appendix B. and steam generation. Legal/Contract and Supply Chain Management Team. and gross reserve calculations. and operations. The purpose of the JOC is to provide for the overall supervision and direction of joint operations. Operations Team is responsible for all field operations personnel required to manage the well servicing rigs. Health. some field studies and support activities are provided by the major projects group (Phase II) in Houston. Centralized Services and Support Team is in charge with drilling which is a centrally managed function within the project operator. steam generation. One of the government-appointed members is the chairman. The direct project team includes: " " " " " Vice-President Field Operations is responsible for delivery of the project objectives. Facilities and Construction Team is responsible for coordinating the design. The Joint Technical Committee and Joint Financial Committee include as well members of Partex and other partners and the objective of these committees is to provide the overall supervision and direction of the technical and financial operations. and construction of all surface facilities including electrical generation. Subsurface Development Team is generally responsible for the field development plan. Planning and Analysis Team. 3. reservoir surveillance.2. artificial lift equipment. fluid treating.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! " " two representatives appointed by the operator.5 Project management process The process. In addition. respectively. reveals the steps that were undertaking in the project from opportunity identification through its final approval and project execution. reservoir and fluid characterization. The description of main key activities is shown in Appendix A. power generation. procurement. and well hookup. with dedicated field operations and engineering teams responsible for designing and drilling all wells needed to meet the requirements of the development plan. The project team is also supported by the field Business Support Teams. The process consists of four phases: ! ! ! ! ! 15! . which are: Finance and Business Support Team. Houston Technical Support Team. development and operations. facilities. The Joint Operating Committee includes the Partex representative as well as representatives from all the other partners that hold a participating interest in the Oman oil field. Human Resources and Administration Support Team. produced fluid treating. The operations team is also responsible for the completion of all the wells. within the framework of Operator of Oman delegations of authority. He is supported by functional managers with key responsibilities and accountabilities in the areas of subsurface. Environment and Safety Team. The committee’s executive role is to oversee the implementation of the PSA.

This phase includes the following steps: review of well design. review of geological model and the field development plan workshop.this phase includes the project review which implies monitoring the project execution and project performance according to the original plan by adjusting and mitigating any deviations.cost estimates. The project budget and specific work packages were approved by operator management according to the delegation of authorities outlined in authority document. During this phase cost planning. drilling and facilities plan. Project communication is organized through the quarterly project management reports. outline of risk and uncertainty management. At this initial stage of the project. handover and start-up. Risk planning ! ! ! ! ! 16! . and equipment quotes provided the basis of capital cost requirements to meet project objectives. 4.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! 1. and infrastructure requirements to meet the planned production forecast. 3. the project opportunity to obtain the oil production of 150 MBOPD by 2012 was assessed and feasibility was studied and evaluated. execution of technical. In cost budgeting .2. These communications and scheduled meetings with partners are another method by which the project receives assurance and support. economical and risk management studies that would be later compiled in a single field development plan. commissioning. development of work programs. and production goals were the critical inputs to develop a project budget forecast. estimating and budgeting was made as well as the integrated project schedule. Initiation phase – this phase included several steps such as opportunity identification and outline of technical and economic studies to define a scope. procurement and construction. The project team also provides updates during the scheduled budget meetings that are part of the PSA agreement. Drilling well construction requirements. were used to create reports that examine the health of the project. The current dissertation objective concentrated on this phase. Cost planning began with a basis of design that included wells. contract rates. Definition phase – this phase was dedicated to the analysis of project requirements and development of project work programs. A number of tools. Execution phase – after reviewing the project documentation and final project approval of the implementation plan and budget by project supervision teams (JMC and JOC). facilities. project schedule. in particular the Risk and Uncertainty Management.6 Risk management methodology The current subchapter describes the risk management tools and techniques that were implemented by the project operator in the analysing case study. the start was given to the execution phase of the project and particularly to the following steps: start of the drilling program. During this phase a comprehensive reporting program was established to ensure that the project is on schedule and on budget. For cost estimating the Operator used the results from front-end engineering design (FEED) studies to develop cost estimations for the facilities and infrastructure. Operation and Maintenance phase . 3. including the Primavera scheduling tool. 2.

Additionally. The purpose of this technique was to provide an independent internal and external expert assessment of the technical and commercial strength of the project. potential risks are listed and ranked based on a risk identification matrix (Figure 6). The peer reviews were designed to examine the current plan. This encouraged the operator to implement methods of technical peer assistance and peer reviews to monitor the technical feasibility of the project execution. ! ! ! ! ! 17! . Then. Risk identification The existing approach of risk identification in Oman project includes identification of the risks through the workshop. The RUMP was designed to acknowledge risks to the projects ultimate goals. The project team leaders and shareholder representatives meet at a workshop to identify the critical risks of the project. The PDRI aimed to clarify risks to the project as it pertains to schedule and cost. due to the technical complexity of the project. The ranking of the risks are based on how they could impact the project goal of achieving 150 MBOPD.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! At the planning stage. likely causes. the project team implemented a Project Definition Rating Index (PDRI) to track the project facilities and a Risk and Uncertainty Management Process (RUMP) to track the overall project performance. and quantify risks through an open interaction between all participants. For estimations three qualitative categories are used: high medium and low. partners anticipated that the major uncertainties would be associated with technical implementation of the project. Figure 6 – Risk identification matrix The next step is listing risks in a table and assigning the respective ranks (Figure 7). probability and seriousness for each identified risk. This was done by creating a list of potential problems. evaluate alternatives.

milestones. An initial FDP was submitted by the operator to the Joint Management Committee (JMC) Board in August 2005. new wells. (3) Qualitative risk analysis. (4) Risk monitoring. According to the Project Management Institute (PMI). (2) Risks identification. the operator didn’t take into account any of project management risk factors. which is responsible for managing identified risks related to the project. which are: (1) Risk planning. Major Findings Review of the current risk management methodology revealed that it is not comprehensive and Partex participation is insufficient. Another conclusion made after analysis of risk factors for periods 2006-2010 (Appendix C) and 2010-2013 (Appendix D) is that the key risks considered by the project operator as high and very high are narrow and mostly technical risks.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Figure 7 . revealing a need to improve the current process followed by the operator. 3. namely: (1) Risk planning. Considered few external and organizational risks. (2) Risks identification. (6) Risk monitoring.7 Case study problem Underpinning the PSA is a commitment by the project operator and the Joint Operating Agreement (JOA) partners to implement a massive steam flood on an Omani onshore oil field. OPEX and CAPEX. ! ! ! ! ! 18! . (3) Qualitative risk analysis.Risk ranking Risk monitoring Project management responsibilities are assigned to the Planning and Analysis business support team (Appendix A). Applied risk management reflects in implementation of four processes. (5) Risk response planning. The operator tracks the project performance execution on a monthly basis through a dashboard illustrating the progress of critical project indicators. Tools implemented in risks management processes by the operator also lack standardization and can be enhanced using the standardized approach that will be performed in the next chapter.2. (4) Quantitative risk analysis. a complete risk management methodology consists of six processes. such as oil rate.

re-use of materials. MBOPD 120 Target: 150 80 Focus: Project 40 20 Period III: Reservoir Management Production Decline Target: Maintain Production Plateau. which affected oil extraction from the field. well and facility abandonment Up 100 MBOPD 60 Period II: definition & execution. As a consequence. the oil production did not approach the expectation of the original forecast. focus willsuch be onproduction aggressively cutting costs MBOPD of oil production by is2012 and the maintain plateau for almost 10 years. This Figure 8willshows threeonperiods of thedefinition projectand execution. the decrease on the length of Period II aiming to maintain the plateau of 150 MBOPD from 2013 to 2018 (only 6 years) and the increase length of Period III (early decline).1.2 . the operator faced difficulties primarly with the generation of the needed volumes of quality steam.Mukhaizna Operating Periods Figure 8April – Original FDP. manage & reduce uncertainty. in order to maximize the economic reserves that can be recovered before the Field After that. the oil production started to lag the forecasted value. but delays in production required immediate corrective actions that increased the planned project budget. aggressive cost cutting. The commitment to achieve the 150 MBOPD production target needed a large initial capital investment in facilities. The An organizational cultureathat looks for cost savings and continual at every opportunity development plan outline included construction of a core facility capable of generating a daily Creative “fit-for-purpose” solutions that overcome the inherent technical and steam injection rate challenges of 550-650 100% quality) and handling a daily oil commercial posedMBSPD by heavy oil(with field developments production of 150 MBOPD. ! ! ! ! ! 19! . 2006 2006 PROJECT EXECUTION STRATEGIES 3-2 At the planning phase. Thesea operating periods are further described Figure 3. particularly caused a negative effect on project Net Present Value (NPV). Target: Prolong economic life of field Focus: Operating efficiency. 160 Period I: 140 Production Ramp- Oil Rate. and requirethe a focus clear project effective contract During the second period the focus will be on managing operating cost while extending a blue the lineplateau is showing the targeted daily oil rate. Management of Mukhaizna field costs will require separate and distinct approaches during each of three major operating periods. definedmanagement.1. at the start of project implementation. efficient execution of repeated tasks. operator was expecting production decline in 2021 withinabandonment of the field reaches its economic limit. The initial period will be characterized by the major capital investments required to reach the target plateau production rate. contract management. After the early startup delays of the facilities and the operator adjustments of the reservoir performance. In 2010. As a result.There are several factors critical to making the Mukhaizna thermal development both a technical and commercial success: A thorough understanding of the reservoir and rock properties of the field An efficient and flexible steam flood design that emphasizes heat management Project Management Methodology and Tools for Oil Field Development: from investor point of view practices and maximizes the efficiency of the injected steam Effective cost control at all stages of the development.2 below. Internal Rate of Return (IRR). continuous improvement Focus: Additional opportunities. by the operator in 2005. acquire & evaluate data. Figure 9 shows the increased Period I forecasting to achieve the production target only in 2013. continuous improvement 0 2006 2009 2012 2015 2018 2021 2024 2027 2030 2033 Year Figure 3. During the third and final period when production in decline. production rates and budget profiles. The initial forecasted target was 150 production rate for as long as economically feasible. the operator issued a revised FDP with new assumptions. reservoir management. However. by 2035. including the drilling and completion of wells and the construction and operation of project facilities ! The FDP proposed to achieve field production plateau rate ofimprovement 150 MBOPD by 2012. the operator was confident in its ability to operate the field in an expedient and cost-efficient manner. gross revenue and shareholders cash flow. the deviations from the original plan were reflected on the project economics.

schedule and project costs. Partex involvement is insufficient.$MBOPD$ 160! 140! 120! 100! 80! 60! 40! 20! 0! Period$I$ Period$II$ Period$III$ $ $ $ Produc3on!Ramp!up! Reservoir!! Produc3on!decline! ! Management!! Target:!150!MBOPD!Target:!! Target:!Prolong!economic!life!of!field!! Maintain!! ! ! produc3on!! plateu!! 2005!2007!2009!2011!2013!2015!2017!2019!2021!2023!2025!2027!2029!2031!2033!2035! Year$ Figure 9 – Revised FDP. Risk management methodology is not comprehensive (four risk management processes were implemented instead of six). due to the continued deviations in costs. Main conclusions of the case study analysis Partex participates as an investor in an ongoing venture in the Sultanate of Oman and shareholders faced unforeseen difficulties during the project execution due to the complexity of the oil field and inadequate project management: " " " " " " " ! ! In general.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Oil$Rate. ! ! ! 20! . which led to the negatiave deviations in oil production. respective root causes and their impact on economic parameters is provided in Section 5. The planning of the project was too optimistic as there were no alternative plans. Risks management tools are lack of standardization. Lessons learned in project management are poorly practicing. schedule and inability to achieve project targets. Detailed analysis of deviations. project estimation (assumptions) in terms of production volume proved to be inaccurate. led the operator to review and update again the FDP during 2013. 2010 Unsuccessful. A monthly dashboard shows the past project performance and results are not futureoriented dimensions.2.

the main tool that was developed to address the project objective was the economic model (Figure 10). However. Before making a decision of investing in capital projects. When calculating profitability. 4. Developed in Microsoft Excel. economists are often ignoring the uncertainties in input values. the proposed economic modeling framework provides automatic calculations of project input data (Appendix E) and intuitive user-interface (Appendix F) that can be used in project updates and future work to screen economical prospects and evaluate the impact of key uncertainties and risks. Figure 10 – Economic modeling framework The economic model can be used for: " ! ! Quick screening and evaluation of project parameters – model allows to get a quick idea about the project current performance providing automatic calculations of input data submitted by the project operator. The output results of the model (Appendix G) will allow Partex to be more aware of project uncertainties and be more prepared for negotiations with the operator using model outcomes as a basis for improvements recommendations. Partex should have a clear view of the project’s profitability. This is a reasonable tool for Partex to monitor its projects performance according to the project plan and shareholders’ expectations. Firstly. the profitability of the project can be misleading if uncertainties are being ignored. Secondly. to implement a standardize risk management framework and performance measurement metric to align the processes according to the internationally recognized standards.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! 4. Proposed solution This section presents a proposed solution that was developed to address the research work main objective.1 Economic modeling framework In line with the current research work. ! ! ! 21! . it proposes “Partex” to use an economic modeling framework to test project performance and be aware of the impact of risks and uncertainties on the project outcomes.

! ! ! ! ! 22! . and can be applied to complex industrial projects aligning the project management processes with the international standards. which are described below. Shell International Exploration and Production. monthly or annual measurements show the past project performance and results are not the future-oriented dimensions.3 Performance measurement metric Key Performance Indicators (KPI) is a metric tool that aims to measure how well a project performs in terms of “operational. Monitoring of KPIs should be done on a daily or weekly basis as quarterly. Partex will benefit from the implementation of this methodology for several reasons: " " " This methodology is a part of a globally accepted standard. this framework would not be a comprehensive tool without the aligned risk management structure and performance measurement metric. However.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! " " Scenarios analysis – scenarios provide a framework with different ways to execute a project and have a greater flexibility for decision-making process rather than one path without alternatives. Sensitivity testing – assessment of project parameters to identify which ones have a greater impact on project performance. evaluation and quantification of project risks.A Guide to the Project Management Body of Knowledge (PMBOK Guide). The objective of performance measurement is to improve effectiveness of managing the project and KPIs address this goal showing progress of the project towards the target results for a specific period. Shell applied a work breakdown structure and a new financial software system to have a common language in its operations for better communication between project members. tactical or strategic activity that is critical for the current and future success of an organization”. This approach gave better understanding of objectives to the project team and efficiently improved shareholders expectations. The framework has already proved its effectiveness. in particular. in its Brutus project.2 Risk management framework One of the standardized project management frameworks is the framework of the Project Management Institute (PMI) . Daily or weekly monitored KPIs will allow managers and shareholders to receive the warning signs about areas that pose a danger to the project performance and need an immediate attention through the implementation of mitigation actions. Tools of this framework were implemented by oil and gas companies. 4. The application of the proposed solution is presented in the next section. Risk management tools will be more easily to apply to the project updates and to the future projects. 4. being of a greater value for the company.

This section describes the projected approach of applying an economic model for a certain fiscal regime modeling in the oil and gas industry. ! ! ! 23! . Thus. The first scenario used the input data of the 2006 FDP. the oil market price. which would prepare the base for different decisions. deviations in project parameters are analyzed using different case scenarios. the output of the economic model depends on assumptions of oil production. however model can be easily adjusted to other fiscal regimes. This scenario includes a forecast for the project life cycle (2005-2035) and includes assumptions of the volume of oil production and project expenditures (CAPEX. the impact of such deviations is translated on project economics.1 Economics and fiscal regime modeling Oil and gas industry poses a lot of uncertainties in the volume of oil that can be developed.2. 5. Case Scenario 1 The first case scenario was developed using the original forecasted data the operator provided at the project planning stage (2006 FDP). Example of fiscal calculations is provided in Appendix H. as the original plan from the operator of the field. The framework of the economic model in this research is shown in Figure 10. OPEX. the operator of Oman field should have accounted for alternative plans or scenarios to explore ways that the project can perform in the future. Model Case Scenarios Generally. The first scenario. a sensitivity analysis is performed. the application of risk management framework and the project performance measurement are presented. Firstly. the economic model was developed incorporating three distinct case scenarios for comparing the outputs of original plan with the two following ones (2010 and 2013) and analyzing the impact of deviations on the project economics.3.2. and the time needed for development and production activities.2.7. project expenditures and a fiscal regime (in this case a PSA). oil price.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! 5 Application of the proposed solution to the case study This section demonstrates the proposed solution by applying it to the case study described in the Section 3. has the following distinctive characteristics: " ! ! Oil production will meet the targeted volume (150 MBOPD) in 2012. Then. Based on a case study problem described in the Section 3. costs for training fund and abandonment). The fiscal regime that is applied to the current case study was discussed in Section 3. Secondly. Finally. The developed economic model incorporates features of the fiscal regime of the analyzed case study. the second scenario is based on the input data of 2010 FDP and the third scenario is based on the latest data and a forecast from a project workshop conducted in 2013 prior issuing the 2013 FDP (pre-2013 FDP).

The major expenditures include facilities construction costs and drilling costs. Oil Production – the volume of oil that can be extracted from oil field reservoirs. Case Scenario 3 The third scenario provides the recent forecast from the operator that includes historical data for 2005-2012 years and forecasted project data for the 2013-2035 period. Expenditures for the project life cycle will reach 17 billions US$. etc. field support. Cost for Abandonment – costs that associated with closure of the project like shut down of wells. Model Inputs Input data is a set of variables that is used as an input for the economic model calculations. The main features of this scenario are as follows: " " " Oil production peak (150 MBOPD) is assumed to be reached at 2014. The second scenario has the following distinctive features: " " " Oil production will reach the target volume (150 MBOPD) in 2013. etc. Operator will maintain the plateau for the 6 following years. removal of facilities and equipment. Model Assumptions Model assumptions are provided in Appendix I. OPEX and abandonment cost) for the project life cycle are budgeted as 11 billions US$. on-the-job training. Total expenditures are assumed to reach 18 billions US$. This scenario includes historical data (2005-2009) and updated forecast of oil production rate and project expenditures for the following years (2010-2035). Training Fund Cost – costs for training program of project’s workforce that include oil field induction program. Expenditures (CAPEX. manpower. environment clean up operations. Plateau will be maintained for 2 years. Operational Expenditures (OPEX) – costs for operating a project that include costs for maintenance.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! " " Operator will maintain the desired oil production during the next 10 years. Case Scenario 2 The second case scenario is based on the input data of the 2010 FDP. The following variables were considered: Capital Expenditures (CAPEX) – investments made in the project. This cost was defined by PSA as non-recoverable. ! ! ! ! ! 24! . Oil Price – field realized price based on the assumptions explained in Appendix I. science. foundation training (math. computer skills).

like increase in project expenditures or decrease in oil production. which evaluates the desirability of the project. Negative deviations. The first step was to analyze deviations in the input parameters of the economic model scenarios. The second step was to study the impact of occurred ! ! ! ! ! 25! . from a way in which the project has been expected to be accomplished. Deviations might be positive and negative. Internal Rate of Return (IRR) – is a rate of return that makes NPV of the project equal to zero. This is another measurement of the project economic performance. namely in oil production. !! . 5. CAPEX and OPEX. Case Scenario 2 with Case Scenario 3. In the model.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Model Outputs The output of the economic model is a set of calculated economic variables. In other words it means any discrepancy between the project results and the original plan agreed by all parties. ! = !!! !! (1 + !)! where ! – a discount rate. This section provides an analysis of deviations in project parameters. The higher project IRR . Partners Cash flow – is an amount of cash generated by partners of Joint Operating Agreement from the project gross revenues deducted of project expenditures and government cash flow. Gross Revenue – is a total revenue that project receives from selling crude oil before deducting any project expenditures. should play for parties the role of an alert and be the reason to the implementation of corrective actions.2 Economic model as a tool to analyze project’s deviations A project deviation is any deviation from the project plan. which are the following: Net Present Value (NPV) – is one of the most important measurements for a project as it evaluates the viability of the investment by calculating the difference between cash inflows and cash outflows using a discount rate (10%). ! . The first part of the section compares deviations in forecasted and actual values of Case Scenario 1 with Case Scenario 2. reasons for those deviations and undertaken corrective actions as well as evaluation of the economic model outputs.the better performance it is showing. Positive deviations can result from increase in oil selling price or increase in volume of oil extraction. Analysis of root causes of project deviations and their impact on the project economics is explained in the next section of the work.time of the cash flow.net cash flow. NPV was calculated using the following formula: ! !"#! !. ! – the total number of periods.

the actual oil production of Case Scenario 2 started to deviate from the target Case Scenario 1 in 2007. the operator could build full field dynamic simulation model covering the entire field area in detail and encompassing all reservoirs. Case Scenario 2) As can be seen from the Figure 11. Hence. production profiles were calculated using a methodology that encompassed smaller dynamic simulation tools. Scarcity of data of the operating field and unexpectable field conditions. Daily$Produc6on$ MBOPD$ 200! 150! 100! 0! 2005! 2006! 2007! 2008! 2009! 2010! 2011! 2012! 2013! 2014! 2015! 2016! 2017! 2018! 2019! 2020! 2021! 2022! 2023! 2024! 2025! 2026! 2027! 2028! 2029! 2030! 2031! 2032! 2033! 2034! 2035! 50! Case!Scenario!1! !Case!Scenario!2! Figure 11 – Production profile6 (Case Scenario 1 vs. Field production forecasts were obtained based upon dynamic simulation model results. Optimistic assumptions made during the planning process that did not reflect the reality. NPV and IRR with the target values. Figure 11 is showing that the operator updated its forecast of reaching the target oil production only in 2013 and reduced the plateau length to 6 years.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! deviations on project economics by comparing actual output parameters such as gross revenue. Finally. the NPV sensitivity analysis was performed to measure the effects of input parameters changes on the project economic outputs. At the ignition of the project. namely: type curve analysis and sector !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 6 ! ! The red area in a diagram constitutes to the analyzed project data. Oil Production Oil production refers to the amount of oil that can be extracted from an oil field. this approach was not followed due to the large volume of work needed to get accomplish this task in due time. However. Figure 11 shows a comparison of the oil production profile between Case Scenario 1 and Case Scenario 2 of economic model and deviations in a volume of oil production that happened from 2006 to 2009. Oil reservoir response was not as expected. the green area – forecasted data ! ! ! 26! . The production targets have not been reached due to the several reasons: " " " " Delay in the startup and operation of steam generation facilities. cash flow.

operator was attempting to determine how best to setup a sector model so that the overall performance of the model would be a reasonable approximation of the actual performance. The comparison in the production profile of Case Scenario 2 and Case Scenario 3 are shown in Figure 12. red area – analyzed data. and no historical rate data were entered into the model. The length of maintain the target volume of 150 MBOPD have been reduced to 2 years. Case Scenario 3) The diagram shows that the peak oil production. These models refer to “typical” good.0! 100. ! ! ! 27! . Hence. After project initiation and first drilling it was noticed that reservoir was not responding as expected and actual oil production was lagging with the forecasted one. Reservoir pressure higher than assumed.0! 2005! 2006! 2007! 2008! 2009! 2010! 2011! 2012! 2013! 2014! 2015! 2016! 2017! 2018! 2019! 2020! 2021! 2022! 2023! 2024! 2025! 2026! 2027! 2028! 2029! 2030! 2031! 2032! 2033! 2034! 2035! 50. All production and injection rates were derived in a prediction mode and were applied to sectors of the field that had no performance data prior to the construction of the model. The key reasons of these deviations were as follows: " " " Lower steam injected than forecasted. Daily$Produc6on$ MBOPD$ 200. The main disadvantage of this approach is that no well-by-well history match was attempted. operator during 2010-2012 years was expecting shortage of steam due to the delay in facilities implementation and also some !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 7 ! ! The grey area constitutes to the past historical data. New field area poorer in reservoir quality than initially assumed. green area – forecasted data. was postponed in Case Scenario 3 until 2014. as it was forecasted in the Case Scenario 2 for the year 2013.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! models simulation.0! 150. Rather.0! 0. no modifications were made to the geologic description. The corrective actions that were undertaken by the operator after observing undesirable reservoir performance was accelerating well construction in order to increase the number of immature patterns and allow production at a lower steam/oil ratio than predicted. which were afterwards extrapolated to the full field scale. According to the provided reasons for the deviations. medium and low quality smaller areas of the field.0! !Case!Scenario!2! Case!Scenario!3! Figure 12 – Production profile7 (Case Scenario 2 vs.

Project Management Methodology and Tools for Oil Field Development: from investor point of view

!

technical problems such as poor performance of mechanical vapour compressors (MVC)
needed to extract steam as well as poor reservoir vertical conformance. The field performance
and the quality of the new areas was not as expected due to the high water saturation in outer
areas of the field and the presence of thin shale layer in the reservoir that was diminishing the
efficiency of steam injection.
The corrective actions that the operator was undertaken during this period were concentrated
around implementation of an aggressive drilling work program that implied to drill
replacement wells for patterns that have suffered wellbore failure and drill Kahmah8 wells in
order to extract additional oil.
Again, the operator assumptions did not materialise. In 2013 the operator felt the need to
evaluate the project, considering improvement wedges that will push forward project
expenditures.
Expenditures Deviations
Expenditure deviations refer to deviations in Capital Expenditures that include facilities and
drilling costs and Operating Expenditures.
Capital Expenditures (CAPEX) are funds that partners of Joint Operating Agreement
investing in the project in order to maintain or increase the scope of operations. Capital costs
include costs for exploration and appraisal, development drilling, production facilities,
pipelines and general property. In Oman project, due to the fact that the field was previously
explored, the major part of the CAPEX investments constitute to facilities costs and drilling
costs.
Operating Expenditures (OPEX) refers to ongoing costs of running a project and they include
costs to manage oil production (maintenance of wells operations), steam injection, campus
and infrastructures, direct and support staff, chemicals and materials, rental power, etc.
Case Scenario 1 vs. Case Scenario 2
As it was mentioned before, the shortage in oil production caused implementation of
corrective actions which consequently increased project expenditures, both CAPEX and
OPEX. In order to quantify occurred deviations, parameters for Case Scenario 1 and Case
Scenario 2 were compared. Then the percentage of each factor contribution to the total
deviations for each year was computed (Figure 13).

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
8

!
!

Underground formation contained oil and discovered during the drilling operations

!

!

!

28!

Project Management Methodology and Tools for Oil Field Development: from investor point of view

!

Expenditures$Devia6ons$(2006A2009)$
100%!
90%!
80%!
70%!
60%!
50%!
40%!
30%!
20%!
10%!
0%!
"10%!

45%!

58%!
"3%!

2006!

25%!

79%!
"4%!

2007!

18%!

71%!

44%!

Drilling!CAPEX!
Facili3es!CAPEX!

39%!

11%!

17%!

2008!

2009!

Opera3ng!
Costs!

Figure 13 – Expenditure deviations (Case Scenario 1 vs. Case Scenario 2)

It can be seen from the figure above that CAPEX was the main variable that pushed total
expenditures forward.
Deviations in CAPEX facilities costs, that constitute to the major part of deviations for the
period 2006-2008, can be explained by the following reasons:
"
"
"

Increase in materials costs;
Change in facility project scope as a result of adjustment for campus infrastructure,
power distribution system and steam generation system;
Poor contractor performance and missed deadlines.

Deviations in CAPEX drilling costs happened due to the shortage in oil production that
consequently changed drilling schedule, increased the number of wells and drilling unit costs.
The undertaken corrective actions to reduce CAPEX deviations were mainly focused on the
continuous improvement on well delivery and well cost reduction. It led to the identification
and implementation by the operator the following actions: stabilization and continuous
improvement of drilling services contractors; operator strived to continue reducing well
durations and costs by continuously reviewing engineering and operations in conjunction with
the various contractors; efficiently tender and manage contracts for supply of trucking
services, water delivery, and other logistic services.
In Figure 13, it can be noticed that actual operating costs started to increase earlier in the
project life (2008) due to the increased number of wells and increased manpower costs.
The key issues of increase in OPEX that occurred in the 2008 - 2009 period were as follows:
"

"

"
!
!

Additional costs were needed to manage steam injection (largest cost of production)
such as well servicing costs to replace steam injection equipment; injection profile
surveys required to measure steam distribution effectiveness; increased expenditures
forecast for seismic work. These operations reflected in an increase in the number and
cost of manpower to maintain the project pace.
Increase in chemicals cost that were estimated in the original Case Scenario 1 based
on analog assumptions or generally accepted oilfield practices. Case Scenario 2
chemical costs assumptions were made based on actual and observed field conditions.
Additional rental power cost that was not forecasted in Case Scenario 1.
!

!

!

29!

Project Management Methodology and Tools for Oil Field Development: from investor point of view

!

"

Additional cost anticipated due to plant start-up activity and infrastructure. These costs
had not been anticipated in 2006 FDP forecast. The assumption was that new facilities
would require very little maintenance. That assumption has proven inaccurate to date.

Among the corrective actions that the operator applied to respond to the operating cost
challenges were attempts of reducing the cost uncertainty by calibration of the cost model
with the continued calibration of estimated costs with actual observations. Also started in
2009, a new cost management process was implemented to help in monitoring and reporting
of all expenses associated with the oil field cost centers.
Case Scenario 2 vs. Case Scenario 3
Figure 14 shows the capital costs comparison between revised budget of the year 2010 and
the actual project budget for the period 2010-2012. The negative percentage of CAPEX in
2010 means that operator did not exceed the budget limit and saved part of the capital costs.

Expenditures$Devia6ons$(2010$A$2012)$
100%!
80%!
60%!
40%!
20%!
0%!
"20%!
"40%!
"60%!
"80%!
"100%!

9%!
2010!

"82%!

48%!

38%!

20%!
32%!

42%!
21%!

2011!

2012!

Drilling!CAPEX!
Facili3es!CAPEX!
Opera3ng!
Costs!

"27%!

Figure 14 - Expenditure Deviations (Case Scenario 2 vs. Case Scenario 3)

The savings in CAPEX that occurred in 2010 was due to less drilling and completion
activities. But the deviations that occurred in the period between 2011 and 2012 were mainly
due to:
"
"

Increase in overall well servicing activities as a result of increase in well count and
adjusted well costs;
Additional budget estimated for activities associated with Kahmah operations,
including well operations and survey data and additional costs associated with the
Steam Injector profile control installations.

Corrective actions included increased focus at subsurface steam conformance, which implies
effective redistribution of the steam across all targeted zones at the injection level, and
downhole steam quality for improving current assumed field average surface.
The key issues that made OPEX deviate from the planned budget were the following:
-

!
!

An increase in manpower cost was required to maintain the project that included
raising salaries, hiring employees from local communities and changes in industry
labor directives due to the political instability in the Middle East.
!

!

!

30!

Project Management Methodology and Tools for Oil Field Development: from investor point of view

!

-

Additional materials and services required for water quality enhancement.

5.3 Analyzing impact of deviations on project economics
The project economics refers to the performance of project economic parameters such as
gross revenue, partners’ cash flow, NPV and IRR. When developing an economic model, the
output parameters were computed for all three case scenarios. First, the target parameters
were identified using the input data of the original project plan (Case Scenario 1). Then two
other sets of output variables were calculated using input data of Case Scenario 1 and Case
Scenario 2. In this section a comparative analysis of planned and actual outputs will be
provided.
Gross revenue
Gross Revenue is the total revenue of the project generated by the amount of the oil
production sold by the respective field price, before deductions of any expenses. Figure 15
presents the comparison of the gross revenue for the three case scenarios. The Case Scenario
1 is planned gross revenue from the project initiation and used as a target.

Gross$revenue$

6000!

M$$

5000!
4000!
3000!
2000!
0!

2005!
2006!
2007!
2008!
2009!
2010!
2011!
2012!
2013!
2014!
2015!
2016!
2017!
2018!
2019!
2020!
2021!
2022!
2023!
2024!
2025!
2026!
2027!
2028!
2029!
2030!
2031!
2032!
2033!
2034!
2035!

1000!

Case!Scenario!1!

Case!Scenario!2!

Case!Scenario!3!!

Figure 15 – Gross revenue profile

Figure 15 shows that operator did not achieve the desired results due to the deviations in oil
production. As gross revenue is calculated as
Gross Revenue = Oil Production * Oil Price,
it can be concluded that the loss in production caused a consequent loss in project revenues.
Note, that for all case scenarios there are identical oil price assumptions as discussed in
Appendix I and in this case price is not a factor of gross revenue deviations.
Partners’ Cash Flow
The cash flow is generated from
Partners Cash Flow = (Cost recovery oil + Partners’ profit oil) – Total costs.
According to the original plan, the forecasted cash flow (Case Scenario 1) should become
positive in 2008, but due to the increase in the investments and drop in gross revenues, the
actual cash flow turned positive only at 2010. Unforeseen negative cash flow that occurred in
!
!

!

!

!

31!

Though it can be explained as a common practice in the first years of the large capital projects as Oman oil field.000! 500! 0! Case!Scenario!1! Case!Scenario!2! Case!Scenario!3! Figure 17 – NPV profile Figure 17 shows the target NPV (Case Scenario 1) which calculations were based on the inputs of the original 2006 FDP.190! 1. NPV indicates whether the future cash flow stream generated by the project will yield a positive net present value when the cash flows are discounted using the assumed discount rate of 10%.500! 500! 0! "500! 2005! 2006! 2007! 2008! 2009! 2010! 2011! 2012! 2013! 2014! 2015! 2016! 2017! 2018! 2019! 2020! 2021! 2022! 2023! 2024! 2025! 2026! 2027! 2028! 2029! 2030! 2031! 2032! 2033! 2034! 2035! M$$ 1.500! 2. All the three case scenarios were ranked at a single discount rate of 10%.000! "1.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! the period 2008-2009 is a consequence of an increased project expenditures and less than expected project income. The deviations that occurred in input variables of Case ! ! ! ! ! 32! . NPV$$ 2.000! Case!Scenario!1! Case!Scenario!2! Case!Scenario!3! Figure 16 – Partners cash flow profile Net Present Value Net Present Value (NPV) is the indicator that incorporates the time value of money. operator should be more accurate in its estimations in order to maintain the reputation of a trusted operator among the project partners.405! 1.000! 1. The discount rate is partners’ cost of capital and when NPV is positive.000! 1.500! 1.282! M$$ 2. investments returns made in the project will be greater than the cost of capital. It means that partners received the positive cash flow 2 years later than initially estimated (Figure 16). allowing the comparison of NPV results. Net$Cash$Flow$ 2.

Sensitivity analysis measures the percentage change in NPV that results from a given percentage change in an input variable when other inputs are held at their expected values (Eugene F. Michael C. It is the discount rate that is required in order to generate NPV of zero. B. 2010). In the projects.4 Economic model as a tool to perform a sensitivity analysis In order to determine the level of impact for the input variables on project NPV and also identify if the project is more dependent on a certain variable. Respective NPV then was calculated (Table 2). holding other variables constant at the base case level.. however due to the negative deviations of input parameters the actual IRR dropped to 22% and then to 20% in 2013 (Figure 18).Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Scenario 2 and Case Scenario 3 impacted NPV in a negative manner greatly reducing the value of the project. Then. the higher the IRR rate the better is the investment and it can be useful as this rate is compared to the cost of capital to indicate if investment is profitable. 50%! 44%! IRR$$ 40%! 30%! 22%! 20%! 20. This analysis was performed using input data of Case Scenario 3 and was taking into consideration the full life cycle of the project (2006-2035). The IRR computed for the original Case Scenario 1 yield 44%. since the project would not be rentable and attractive for investors. each input variable was increased by 10% and 20% and then decreased by 10% and 20% from the base case. OPEX. The NPV sensitivity was tested to the following variables: CAPEX. the investment would not be made. 5. The base case scenario (variation 0%) assumed that the project NPV does not increase or decrease by any value. Internal Rate of Return The Internal rate of return (IRR) is another indicator of time value of money and it computes in percentage terms. a sensitivity analysis was conducted. The discount rate of the project was assumed as 10%. which meant that if calculated IRR would be lower than 10%. E.3%! 10%! 0%! Case!Scenario!1! Case!Scenario!2! Figure 18 – IRR profile Summary of deviations in input and output parameters for three Case Scenarios is shown in Appendix J. Table 2 – NPV sensitivity analysis ! ! ! ! ! 33! .. Oil Brent price and Production volume. A change in key input variables will cause the NPV to change.

The fluctuations of the bars in the Figure show the range of NPV sensitivity to each input. The larger the range. in the analyzed case study. On the contrary. 2010). E. That means that increase or decrease in capital and operating costs did not significantly influence the NPV of the project.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Variation in OPEX Result on NPV Result on NPV Variation in Brent price $M Variation in CAPEX % % -20% -10% 0% 10% 20% Variation in Production Volume % Result on NPV % Result on NPV $M $M 1217 1190 1164 1137 1111 -20% -10% 0% 10% 20% 1176 1170 1164 1158 1152 -20% -10% 0% 10% 20% 819 991 1164 1336 1509 -20% -10% 0% 10% 20% 851 1007 1164 1320 1477 $M Finally. control and implementation of lessons learned to the project.. the wider the variable’s bar and the more sensitive NPV is to this variable (Eugene F. This. NPV was very sensitive to changes in oil price and production volume. The cost recovery mechanism defined by PSA terms implies that all costs that invested in the project can be recovered. B. the set of NPV results was plotted into graphical representation of NPV sensitivity to changes in input variables (Figure 19). It can be explained by the contractual arrangement of the project. lead to a conclusion that negative deviations in oil production volume negatively impacted the economics of the project. Michael C. This can be a result of poor project management techniques in particular planning. ! ! ! ! ! 34! . eliminating the impact of oil price due to the single oil price scenario used in the economic model. estimation. was not very sensitive to the changes in CAPEX and OPEX.. NPV$Sensi6vity$Analysis$ Brent!Price! Produc3on!volume! +20%! OPEX! "20%! CAPEX! 0! 500! 1000! $M$ 1500! 2000! Figure 19 – NPV sensitivity analysis One of the obvious observations is that NPV.

investors. 5. Therefore.5 Risk management framework This section is dedicated to the demonstration of risk management framework that can be applied to enhance the effectiveness of risk management process of Partex ventures. Timing – information about when and how often processes and activities associated with risk management in the project schedule will be performed. including elements such as methods. For ventures with multiple investors. These meeting should help to determine potential risks and establish a common understanding among all parties involved in a project. planning activity is important in order to ensure the visibility of the plan and establish an agreed-upon basis for evaluating risks.2 Risk identification Risk identification is the process of determining which risks may affect the project and ! ! ! ! ! 35! .Project Management Methodology and Tools for Oil Field Development: from investor point of view ! 5. Roles and responsibilities . and control risks during the project life cycle. which describes how shareholders will define. Budgeting – assignment of resources and estimation of costs for risk management procedures that should be included in the project cost baseline. analyzed.meetings and analysis of risks. This process can increase the probability of success for the five other risk management processes if it carried out carefully and explicitly. Reporting formats – description of how risk management information will be maintained. The framework includes consequent implementation of the six risk management processes that were discussed in Section 2. updated. stakeholders or other persons who is involved in the process of risk planning. which should include representatives of project team. it might find that risk tolerances have changed and should be documented in the risk management plan. tools. Tracking . Plan Risk Management has only one tool . after planning meetings and workshops Partex should request the risk management plan from the operator and ensure that this plan contains the following information: " " " " " " " Methodology . The ultimate goal of the Plan Risk Management process should be an establishment of a risk management plan.description of how operator will document the history of the risk activities for the project and how the risk processes will be inspected. and where risk data might be found that shareholders can use in the later processes. and reported to project shareholders.4.as operator proceeds through the risk management processes.5.5. Revised stakeholder tolerances . 5. monitor.description of how operator will perform risk management plan.description of people who will be responsible for managing the risks.1 Plan risk management Plan Risk Management is the process of defining how to conduct risk management activities for a project.

project assumptions and historical information of the project. RBS is a hierarchical representation of risks that splits four major risk ! ! ! ! ! 36! . The consequences that might impact the project if the assumption turns out to be false.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! documenting their characteristics. In oil and gas projects assumptions are an important part of technical studies and simulation models and the results are being used for the project production and budget forecasts. Diagramming techniques. Authors of Project Management Institute proposed a comprehensive approach in risk identification process that can incorporate several tools and techniques: " " " " " " " " Documentation reviews. Partex can make its own test of assumptions that are provided by the operator to ensure that results are matching with operator outcomes and the Group internal expectations. complete. 2009). Risk Breakdown Structure Risk Breakdown Structure (RBS) is a new concept that aims to structure project risks arranging them by categories and sub-categories which helps to identify areas and causes of potential risks. 2004). This is an iterative process because new risks may evolve or become known as the project progresses through its life cycle. Information-gathering techniques. Assumptions analysis. this review can lead to the creation of the complementary risks from Partex standpoint. Risk categories. the process examines if assumptions are accurate. The review can be done internally by the Partex team and will help the Group to validate the quality and consistency of deliverables from the operator. Assumptions analysis Assumptions analysis is a process of validating the assumptions as they apply to a project. Expert judgment. SWOT analysis. risk breakdown structure and additional tool benchmarking. and consistent. Partex is recommended some of these tools particularly documentation reviews.. The frequency of iteration and who participates in each cycle will vary by situation (PMI. All assumptions should be tested against two factors: " " The strength of the assumption or the validity of the assumptions. To carry out the internal analysis. assumptions analysis. Also. Checklist analysis. Also. Documentation reviews This technique involves review of project plans. All assumptions that turn out to be false should be evaluated and scored just as risks (Heldman K. Thus.

organizational and project management into the finer risk levels (Figure 20). The results of RBS can also be used later in qualitative risk analysis to understand dependencies and correlations between risks. This will allow to understand what risks the industry is currently facing and if the operator risks list should be complemented. Figure 20 – RBS for Partex ventures An example of the application of RBS tool is provided in Appendix K. The example of risk benchmarking is shown in Appendix L. external.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! categories such as technical. ! ! ! ! ! 37! . Currently. The tool will assist in identifying generic and specific project risks that can help to create a proper risk response plan. and roots caused the risks. The ultimate outcome of the risk identification process is the Risk Register that should contain: " The list of identified risks (Appendix M). the operator is not categorizing the project risks and Partex can internally apply this tool. risk exposure types. Benchmarking This is an additional tool that Partex can use to compare risks identified by the operator with risks of the oil and gas majors such as BP. ExxonMobil etc. as RBS serves as a checklist to ensure that all risks are covered. Shell.

The ranking of the risks are based on how they could impact the project goal of achieving 150 MBOPD. low risk) is based on the combination of the two. medium. and cost effective (Heldman. To enhance the current methodology. Risk Categorization. this process considers the impact that identified risks will have on the project performance and the probability that they will occur. In the Oman project.6. The qualitative methodology was discussed in Section 3. Qualitative rankings are assigned to the likelihood and seriousness of the risks and an overall risk ranking (high. review.5. Risk Data Quality Assessment. establishing the list of risks and respective ranks.Sample Risk Register Risk Name description risk of and a Trigger Cause Impact Owner Response Plan The warning sign that a risk will occur The origin of a risk The effect on project objectives or overall project performance The person who is responsible for a risk Corrective actions that were undertaken to reduce or eliminate a risk 5. This tool sufficiently helps to document. 2009). Table 3 .Project Management Methodology and Tools for Oil Field Development: from investor point of view ! " The list of potential responses. track. Partex can use the same tool but in more comprehensive way. This process is the one of the most common processes when prioritizing project risks because it is fast. and manage risks throughout the project. for performing a qualitative risk analysis the operator used the risk matrix tool. it is distributed among the shareholders.3 Qualitative risk analysis The Project Management Institute identified that “qualitative risk analysis as the process of prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact”. relatively easy to perform. The PMI recommends the following tools and techniques to perform the qualitative risk analysis: " " " " " " Risk Probability and Impact Assessment. Expert Judgment.2. The example is provided below. In other words. Risk Urgency Assessment. Probability and Impact Matrix. Risk Probability and Impact Assessment ! ! ! ! ! 38! . Below it will be discussed the implementation of two qualitative techniques – risk probability and impact assessment and probability and impact matrix. After.

20 High /. Probability and Impact Matrix ! ! ! ! ! 39! . Oil price changes – maintain the project with a desirable oil market price. Medium impact was assigned as 20%. a review of the project historical data and series of interviews with Partex experts were carried out. Project objectives and estimated impact were combined in the Table 4. This tool helps to assess the probability of occurrence of each risk factor that were identified and also analyze what impact these risks will have on project objectives. Finally.10 Medium /. The objectives of the Oman project were identified as follows: " " " " Production rate – meet the target production rate of 150 MBOPD.40 Very High /.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! The purpose of this technique is to analyze and detect risks that need immediate attention and implementation of aggressive measures. Very high impact was assigned as 80%. the following estimations were made: " " " " Low impact on project objectives was assigned as 10%. Most commonly this analysis is being accomplished using the expert judgment. Failure in estimating the correct values will have an effect on the next technique that is assigning the overall risk score to identified probability and impact values. High impact was assigned as 40%.Defined conditions for impact scales of a risk on major Oman Oil Field project objectives Project Objectives Low /. Time – meet the project target production (150 MBOPD) in the established schedule. To demonstrate the application of this technique on the Oman project. Table 4 .80 Production rate (150 MBOPD) <5% volume decrease 5-10% volume decrease 10-15% volume decrease >15% volume decrease Capital Expenditures <5% CAPEX increase 5-15% CAPEX increase 15-20% CAPEX increase >20% CAPEX increase Operating Expenditures <5% OPEX increase 5-15% OPEX increase 15-20% OPEX increase >20% OPEX increase <5% time increase 5-10% time increase 10-20% time increase >20% time increase <5% oil price decrease 5-10% oil price decrease 10-20% oil price decrease >20% oil price decrease Time Oil price changes Every risk that is identified throughout the project should be carefully assessed using the table above. Capital and operating expenditures – meet the project budget for capital and operating costs.

may require priority action and aggressive response strategies. hence. priority for attention.30 0. these risk-rating rules are specified by the organization in advance of the project and included in organizational process assets.50 0. or high priority (PMI.09 Medium 0.10 0. ! ! ! ! ! 40! .Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Impact is the evaluation of consequences that risks posed to a project. The commonly used risk impact scale is a relative scale that assigns values such as high-medium-low (Heldman.24 High 0.10 Medium /.05 Low 0.06 Medium 0.02 Low 0. is typically conducted using a look-up table or a probability and impact matrix. Evaluation of each risk’s importance and. yellow area – Medium risk and green area – Low risk. it was decided that the risk would have a medium impact (5-10% volume decrease) on a project objective “Production rate (150 MBOPD)”. and that are in the high-risk zone of the matrix. the project management team has estimated that a risk might occur with an impact on the volume of oil production.40 High 0. two values were correlated in a Table 5 and the risk was ranked as “0. The red area represents Very High risk.08 Medium When probability of risk occurrence and impact on an objective are estimated. 2009).12 Medium 0.01 Low 0.28 High 0.2004). The example of application of this technique is provided in Appendix N.04 Low 0.18 High 0. Then. moderate.70 out of 1.70 0. Finally.14 Medium 0. This technique aimed to help in estimating proper risk responses: risks that have a negative impact on objectives if they occur (threats).36 High 0. Table 5 shows the proposed Probability and Impact matrix to execute a qualitative risk analysis.80 0. Usually. For instance. After brainstorming. the team assumed that the probability of risk occurrence is 0. Table 5 – Proposed Probability and Impact Matrix Impact on an objective Probability of occurrence Low /.14 Medium”. Numerical values can be applied when prioritizing risks based on results of the matrix.2009).56 Very High 0.20 High 0.10 Medium 0.40 Very High /.07 Medium 0.20 High /. Threats in the low-risk zone may not require proactive management action beyond being placed on a watchlist or adding a contingency reserve (Heldman. it is easy to find in a matrix a corresponding cell with numerical value and natural language expression of the risk.03 Low 0. Such a matrix specifies combinations of probability and impact that lead to rating the risks as low.72 Very High 0. orange area – High risk.90 0.

! ! ! ! ! 41! . Decision Tree Analysis. In order to quantify the impact of the project risks. The prioritization of risks by those that require an urgent response and those that can be handled at a later date (PMI. it is recommended Partex to carry out its own internal analysis using developed economic model as a tool. Sensitivity analysis Sensitivity analysis is a quantitative tool that aims to determine which risk has the greater potential to impact a project performance.5. a risk response plan (Heldman. The advantages of this analysis would be discussed below. Expert Judgment. qualitative study of risk factors is not enough for reducing uncertainties and making good decisions. The main purpose of carrying such analysis is to ensure that the identified risks are below the tolerable limits.2009). Risks that during the Qualitative Risk Analysis were estimated of “low” significance should be put on a watchlist for the continuous monitoring. Then the performance of the project is being tested by increasing and decreasing the variables by identified range. “medium” and “low”. Expected Monetary Value Analysis. According to PMI. 5. Risks grouped by categories. Watchlists of low-priority risks. However. The results of this study will give the overview of how much the project performance can be affected by various risk elements.4 Quantitative risk analysis All capital projects have uncertainties. List of risks requiring response in the near-term.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! The ultimate goal of qualitative risk analysis is to prioritize the identified risks and determine which ones need the further analysis and. for instance +20%/-20%. This risk categorization can reveal the common root causes or areas of the project that need project management team attention. Usually risks are classified by individual significance such as “high”. The concentration on a specific category can improve the risk response efficiency. That is why nowadays oil and gas companies are widely using the quantitative risk analysis techniques. eventually. Modeling and Simulation. Project management team has to focus on risks with “high” significance on project objectives that should lead to immediate response actions and as a result a prevention of a negative project outcome. It also allows to see which risks might have the biggest impacts on the project and will require detailed response plans. 2004). This technique can be explained as follows: the company chooses a set of variables that in its opinion will have an impact on a project. The risk register has to be updated with the following inputs: " " " " Relative ranking or priority list of project risks based on the results of probability and impact matrix. this study can be approached using several tools such as: " " " " " Sensitivity Analysis.

After that. which are NPV. creating the set of assumptions. ! ! ! ! ! 42! . including the current year. and will cover the period from 2013 to 2017. Risks will affect the project during the five following years. The base case is the case that is not impacted by any risk. The diagram below is a graphical representation of the table. are presented below. the operator will be able to mitigate or eliminate the risks. For “time increase” variable it was assumed that Operator will not reach the production target in the following five years and average of 130 MBOPD was taken as an input for model calculations for a given period.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! As an example. etc. the sample sensitivity analysis was conducted and five project risks with different impact on objectives were selected and.711 Results of the risk sensitivity analysis are represented by the delta (difference) value between the base case and the case resulted from the change in risk variable. 4. 3. Risks will not affect the historical data that is covering the period from 2005 to 2012 of the project. 2. particularly impact of risks on project’s NPV. For calculations of outcome parameters the data of “Case Scenario 3” of the developed economic model was used. partners cash flow and partners revenue. Table 7 – Risks sensitivity analysis Risk Factor Oil price changes Inability to achieve target bottomhole pressure Well construction schedule slippage Change in Oman Labor directives (recruitment.) Inability to achieve target vertical injection conformance Consequences on the objective NPV delta $M Partners Cash Flow delta $M Partners Revenue delta $M 25% oil price decrease 25% volume decrease 10% time increase 40% OPEX increase 20% CAPEX increase 534 639 639 485 581 580 214 125 253 148 252 -1085 25 28 -202 The table above is presenting an approach that allows to quantify the impact of potential risks on a project performance. applied to the developed economic model.642 Base Case Partners Revenue $M 15. Assumptions and outcome parameters. Assumptions 1. contract costs.095 Partners Cash Flow $M 4. The base case values are as follows: Table 6 – Base case output values NPV $M 2.

whereas the negative mean “gain”. happened due to the specificity of the project contractual arrangement.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Risks$Sensi6vity$Analysis$ Oil!price!changes! Inability!to!achieve!target!boVomhole! pressure! Well!construc3on!schedule!slippage!! Change!in!Oman!Labor!direc3ves! (recruitment. more costs are being invested in a project.!contract!costs. and Cost Oil Recovered = CAPEX + OPEX.!etc. Prioritized list of quantified risks. The results should contain projected completion schedule and expenditures along with a confidence level associated with each (Heldman. outcome parameters are not very sensitive to changes in expenditures due to the project contractual arrangement (PSA). Trends in quantitative risk analysis results. 5. For this process PMI proposes four techniques: ! ! ! ! ! 43! . By PSA terms costs can be recovered and assume that Partners Revenue = Cost oil recovered + Profit oil. Probability of achieving the cost and time objectives. The outcomes of quantitative analysis process is risk register updates that will incorporate the following new elements: " " " " Probabilistic analysis of the project – forecasted results of project schedule and budget as specified by the outputs of risk analysis. more costs can be recovered (assuming that the project generate enough gross revenue to cover project expenditures) and benefit for partners net revenue.5 Plan risk response The objective of a plan risk response process is to develop risk responses for risks with significant threat or substantial opportunity for project objectives. The positive values mean “loss”.)! Inability!to!achieve!target!ver3cal!injec3on! conformance!! "600! "500! "400! "300! "200! "100! Impact!on!NPV!(Delta)! 0! $M$ Figure 21 – Risks sensitivity analysis It can be noticed that the greater impact will have the risks that have negative consequences on oil price. 2009).5. volume of oil production and time of the project. therefore. despite the increase in expenditures. The gain in partners revenue.

risk-related contract decisions. risk management techniques are being followed.6 Monitor and control risks Monitor and control risks is a process of keeping identified risks on track. Partex can implement all four strategies in risk response planning. 5.5. ! ! ! ! ! 44! . This strategy is different from the mitigation planning as if mitigation aims to reduce the probability and impact of the risk then contingency planning is implying the development of response strategies in advance of the threat occurring. Status Meetings. This approach includes the following tools: " " " " " " Risk Reassessment. response plans should be developed and be prepared for implementation. When risks were identified and quantified. are: risk register updates. analysis of risks should be changed or retired. The purpose of this process is to determine if the project’s assumptions are still effective. Variance and Trend Analysis. The output of risk response planning process. or contingency planning. It should be mentioned the few tools that Partex might find useful to implement in the risk management practice of current and future projects – Risk Audits and Variance and Trend Analysis. Risk Audits. project management plan updates. Contingent response strategy. Risk Audits The purpose of risk audit tool is to monitor current risks and implementation of the risk response plan and also to test the effectiveness of the overall risk management process.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! " " " " Strategies for negative risks or threats. optimizing risk responses and evaluating effectiveness of risk management process throughout the project. Contingent Response Strategy Contingent response strategy. according to PMI methodology. Each of these tools includes a strategy. identifying new risks. is a process of planning alternatives to cope with risk in case of its occurrence. and project document updates. however we would like to highlight one of them – Contingent Response Strategy. Strategies for positive risks or opportunities. Technical Performance Measurement. This process can take place during the workshops with partners or as separate risk audit meetings. Reserve Analysis. Expert judgment.

6. benchmarking with oil and gas majors. KPIs should be well defined and easy to understand. This can be accomplished using developed economic model as a tool to forecast unfavorable deviations from the budget and schedule plan and identify the potential impact of risks or opportunities. Easy to understand. 5. Investors can amplify the impact of KPIs by providing compensation to them (Wayne. The core characteristics mentioned above can make key performance indicators effective and provide a common understanding of project targets. the risk management information should be gathered and stored for the future projects and for lessons learned from project management activities. Actionable. KPIs should address the work that is currently undertaken in a project and be periodically reviewed and updated. 5. Reinforced with incentives. the project execution should be carefully monitored using project performance data. KPIs should present actionable data so project team can analyze the information and improve performance before the unfavorable consequences. 2006).Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Variance and Trend Analysis Variance and trend analysis aims to compare planned results with the actual ones. rules. Standardized. KPIs should concentrate employees on a few high-value tasks and not to spread their attention on too many indicators. Relevant. and calculations so they can be integrated throughout the company. updates of project documents such as update of risk register with results of risk reassessments.1 Characteristics of KPIs The ultimate goal of the KPI metric system is its effectiveness in the project performance measurement. KPIs should be based on standard definitions. and interviews with Partex experts from reservoir. HSE and management ! ! ! ! ! 45! .3. Each KPI should be “owned” by an individual or a project team who is responsible for its outcome. project risks and risk responses. 5. a list below provides selected characteristics for successful KPIs developed by Wayne Eckerson: " " " " " " " " Aligned. When controlling risks. Finally. Hence. The outcomes of the process of monitor and control risk might be updates of project management plan. risk audits and risk reviews. KPIs should be aligned with the corporate performance targets. In this section a discussion of the distinctive KPI characteristics will be given. finance.6. Owned.6 Project performance measurement: Key Performance Indicators The benefit of implementing Key Performance Indicators as a measurement of a project performance was already discussed in the Section 4. Few in number.2 Categories of KPIs The selection of KPIs was based on documentation reviews.

Operational Performance. ! ! ! ! ! 46! . Each of high-level (corporate) KPIs contains sub-level KPIs. The corresponding weight can be applied in calculations of the index of overall project performance. Project Performance. (HSE) Safety and KPI Environment Weight Personal safety performance 10% Process safety performance Transportation safety performance 10% 10% Operational Performance Hydrocarbons production Steam performance Drilling performance Operating costs Capital employed 10% 10% 7. Human Resources. KPIs proposed for Partex practices were organized into four main categories (Table 8) common to oil and gas projects such as: " " " " Health. Nowadays it became very important for companies to track the number of dangerous occurrences.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! sectors.5% 10% 7. Safety and Environment HSE is an important indicator of any industry but particularly in the oil and gas sector which is one of the most hazardous ones. HSE category in Table 8 includes three high-level KPIs such as personal safety performance.5% Project Performance Strategic performance Financial performance Human resources availability and people development 10% 10% 10% Human Resources Below is a brief description of each category and the respective KPIs. Table 8 – Proposed KPIs (high-level) Category Health. injuries and oil spills in order not to damage the reputation and to maintain the competitive advantage. Selected project KPIs were structured and grouped according to what they are planned to indicate. Safety and Environment (HSE). process safety performance and transportation performance. Health. Personal safety performance monitors if employees are following the corporate rules and work safely.

Transportation safety performance As industry deals with driving operations of people and products. it can’t avoid the inherent risks that transportation poses to the safety of processes. Drilling performance This KPI manages the drilling performance of the project in terms of new wells drilled versus wells planned. Operational Performance This group of KPIs is important for the overall success of the project as it measures the internal operational performance. Steam performance Due to the thermal development of Oman oil field. operating costs. drilling performance. steam performance. We selected five high-level KPIs which are: hydrocarbons production. cost of the well and development of patterns. the steam performance should be monitored to ensure the reliability of oil extraction process. Therefore. Strategic performance This KPI monitors of there is enough capability to complete the project on time and within budget on the basis of established targets. capital employed Hydrocarbons production This indicator measures the output rate of oil produced and should be carefully monitored to meet investors’ expectations. Financial performance ! ! ! ! ! 47! . According to International Association of Oil and Gas Producers (OGP) “in recent years.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Process safety performance monitors the reliability of operations and processes that deal with hazardous substances. major incidents in oil and gas industry have highlighted the importance of having these robust processes and systems in place”. The following KPIs are being considered: strategic performance and financial performance. through monitoring this group of KPIs transportation-related risks can be identified and mitigated in time. Operating costs and Capital employed Indicators measure if the project is executed according to the planned budget for OPEX and CAPEX. Project Performance This group of KPIs monitors well being of the project at the corporate level and gives investors a quick view of its profitability and if the project is executed according to the developed strategy.

If the metric value meets the target value. the actual performance of oil production is 99 MBOPD. it would be easy to identify which zone corresponds to the metrics’ results. Here. Figure 22 – KPIs Boundary Bar For the current Omani project.6. For example. For capital employed and operating costs the unfavorable situation will be if these costs increase. four project’s KPIs were selected to demonstrate the application of the measurement process (Table 9). the target and the same tame favorable performance will be zero fatalities. and as an opposite. it corresponds to a normal performance. 5-10% exceeding the target . they represent if the metric is above or below the established target. When project team would compare the actual project performance for a specific period. The target range columns show the boundaries of metrics’ targets and zones of success and failure. HR availability and People development KPI tracks the availability of human resources measuring employee turnover and recruitment rates.outstanding performance. 5.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Measurement of the net cash flow from investor’s activities. if the project team will be able to keep the costs below the target limit. ! ! ! ! ! 48! . Targets should be realistic and tied to the project objectives. For fatalities. Figure 22 shows an example of KPIs boundary bar. But it is important to mention that KPIs are not targets. no values for unfavorable expectation can be identified as even one accident resulted in fatality means the failure in performance.3 KPI targets and KPI measurement The KPI targets serve as a boundary against which the measurements will be done. Human Resources This set of KPIs monitor if project has enough manpower and to execute the project and if employees have all necessary capabilities. which is below the predefined target (105 MBOPD). below 5% of the target might lead to an unfavorable expectation and below 1015% to the failure of the KPI and need of an immediate attention. Employee training rate should monitor if staff has sufficient knowledge of operations and processes.

Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Table 9 – Example of an application of the project performance measurement Target Range N 1 2 3 4 Category KPI HSE Operations performance Fatalities Oil Production Operations performance Operations performance Capital Employed Operational costs Actual Perfor mance Fail (15%) Caution( -5%) Target Success (+10%) Rate 1 - 0 0 0 MBOPD 95 100 105 115 99 US M$ 46 38 40 36 35 US M$ 82 76 72 65 81 Units A list of proposed KPIs and sub-KPIs can be found in Appendix O. To summarize. ! ! ! ! ! 49! . KPI shows if the actual position is below or above a predefined target and designed to let investors know if the project is being executed according or not to the original plan. KPI is a useful tool to measure a project performance as these metric help to identify problem areas easier. provide time-based results for better-decision making and as a result improve project performance.

review.5. In order to familiarize us with the current processes and techniques. Structure risks in Risk Breakdown Structure to ensure that all project risks are covered. Evaluate risk factors of the project through simulating the occurrence of the unfavorable events using the economic model. Conclusions and recommendations for future projects The main objective of the presented work was to generate a methodology and tools that can help to improve Partex Oil and Gas Group current management process of its ventures in oil and gas projects. This approach brings a lot of uncertainties and not always favorable expectations for Partex shareholders. Monitor and control risks throughout the project to ensure that risk management techniques are being followed. Quantify the impact of risks on project performance to ensure that identified risks are below the tolerable limits using quantitative analysis tools described in this report (Section 4. secondly. track. which obtained a positive feedback from Partex senior management: " " - - ! ! Implement an internal project management analysis and review of data submitted by the operator. Use an economic model and risk management framework and obtain internal risk management results to be better prepared for negotiations with operator. implementation of the framework of the Project Management Institute to standardize and enhance current project management processes.3). an analysis of an ongoing venture where the Group participates as an investor was conducted. utilization of an economic model to evaluate the impact of variations in assumptions on project performance (regarding model scenario) and perform sensitivity analysis to evaluate project risks. it relies on a data from the project operator and its methodology. Implement risk register to document. ! ! ! 50! . Monitor the operator risk management process and ensure that all submitted data is complete and relevant. The solution that was chosen to address the main objective consists of two parts: firstly.5.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! 6. Prioritize identified risks using qualitative analysis tools described in this report (Section 4. Implement a risk response strategy to guarantee that there are enough alternatives to cope with the risk in case of its occurrence. Internal review of risk management reports and analysis of project assumptions (strength and validity).4). Measure the project performance using KPIs on a daily or weekly basis to monitor the project progress towards the target results. and manage risks throughout the project. Use risk benchmarking of oil and gas majors to ensure that list of risks provided by operator is comprehensive. The current situation can be improved using the following set of recommendations. The main concern of Partex is that since the Group is acting mainly as investor and not managing directly the operations of most of its assets.

2013. Continue to study and explore project management risks and adaptation of frameworks to the oil and gas industry. The current research work obtained a positive response from Partex senior management and some of the recommendations were already addressed to the operator of the project in the Sultanate of Oman during the workshop meeting of shareholders representatives in July.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! The future work that should be done by Partex is as follows: - Implement the abovementioned recommendations. ! ! ! ! ! 51! . Observe the results and make adjustments if necessary.

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Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX A: Organizational structure of case study project ! ! ! ! ! ! ! 54! .

Project Management Methodology and Tools for Oil Field Development: from investor point of view ! ! APPENDIX B: Case study project management process ! ! ! ! ! 55! .

H – high.low ! ! ! 56! . M – medium.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX C: Case study risks evolution (2006-2010) ! Risk scale9 Risk name Gas supply delayed/insufficient 2006 2007 2008 2009 2010 VH H H VH - increased - VH M reduced Facilities Construction schedule delayed VH H reduced Insufficient/inadequate human resources VH H reduced Reservoir does not respond as well as expected H H no movement Water Supply for steam delayed/not available H M reduced Selected water treating does not work H M reduced Well construction schedule delayed H L reduced no movement VH increased VH increased H no movement M no movement M no movement L no movement no movement H reduced H no movement M no movement M no movement L no movement reduced - M reduced - - M reduced !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9 ! ! VH . L .very high.

Mitigation will include diligent surveillance and heat management. Much of the capital spending has already occurred for the project. The impact and the risk have lessened because of the reservoir response and the existing facilities capacity. with the costs being higher than in the 2006 FDP. Higher than expected steam costs due to reservoir quality. Proper delineation to identify these areas followed by an adjustment of the development plan will align the spending with the expected performance of these areas. 2. Bottomhole pressure. and additional APO wells. well cleanouts. stronger project management and control have been applied to the remainder of the capital expense projects. well sanding and lower MG1 performance can be mitigated by additional spending on pressure reduction through casing vapor recovery. but would simply defer production. Delays in construction at this point will prolong a reduced capacity. Facilities construction delays More than half of the production capacity has already been built for the project. The remainder of the capital expense is occurring during more favorable market conditions. ! ! ! ! ! 57! .Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Delays due to external approval H M reduced Unacceptable operating costs due to reservoir performance - M no movement - - H - increased - - M ! The major project risk factors for the period 2006-2010 are: 1. Cost control going forward will be focused on operating expense. Project economics have been adversely affected by the market conditions of the first two years and by the fast pace of the project. Reservoir does not respond as well as expected Reservoir response has the longest and most far-reaching impact on the project economics. Delays are being minimized by stronger project management and project controls. In addition. Unacceptable operating costs due to reservoir performance The original cost risk was high capital spending due to the fast pace of the project. Poorer reservoir quality in future development areas cannot be controlled. The key cost is steam generation and fuel costs. 3. shale beds or aquifer support could drive costs higher.

.very high. L . contract cost .. M – medium. H – high.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX D: Case study risks evolution (2010-2013) Risk scale10 Risk name Delay in 9E11 repair Greater than planned temperature associated with MVC Establish reliable supply of sodium chloride Insufficient human resources Inability to achieve target injection conformance Well construction schedule slippage Operational up-time less than expectation (reference 5%) 9E shutdown 2011 2012 2013 VH M - - reduced - H VH M - increased reduced H M - - reduced - H VH H - increased reduced - VH VH - - no movement L L H - no movement increased M M VH " no movement increased - - VH new risk Inability to achieve target bottomhole pressure - - H new risk Industrial Labor Dispute - - VH new risk Change in Oman Labor directives (recruitment.low 9E – name of the of the turbine used in operations ! ! ! 58! .etc) VH - - new risk !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 10 11 ! ! VH .

" Poor injection performance. 2. Mechanical and hydrolic problems. " Strong/infinite acting aquifer. " Higher pump setting depth due to wellbore configuration. 5. Labor dispute. ! ! ! 59! . Well construction schedule slippage The slippage happened due to: " " " Shortage of qualified drilling personnel. Nation-wide additional recruitment campaigns. 4. Industrial Labor dispute and Changes in Oman Labor directives The risks were caused by: " " " " ! ! Arab Spring movement. Concurrent failure of major rig components. better working conditions. Tight rig/material market. Profile control equipment not working as designed. 6. 9E shutdown The risk was caused by the following factors: " " Planned preventive maintenance and Planned corrective maintenance. Operational up-time less than expectation The operational up-time was affected by: " " " Insufficient power. Subsurface splits and steam quality. Inability to achieve target bottomhole pressure The causes of this risk are: " Well equipment limitation and surface facility temperature limitation. Inability to achieve target vertical injection conformance This risk is posed by several factors: " " " Inability to achieve conformance due to the surface. Demand of higher wages & more benefits.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! The main risks for a given period are as follows: 1. increased job security. 3. Insufficient processing facilities. " Higher surface pressure.

70 35.211 111.210 1.000 0.5 0.000 1.712 34.5 9.750 0.655 75.5 0.340 149.95 37.70 35.987 107.70 35.31 3.662 27.667 440.70 35.680 428.631 24.269 222.678 62.000 0.190 435.70 35.538.614 99.70 35.5 0.4 103.61 2.5 0.000 ! *Values*according*to*FDP*2006 ! ! ! ! ! 60! .70 35.3 86.958 17.7 78.5 0.5 0.709 118.056 28.543 16.5 0.180 98.20 9.010 12.000 1.325 404.70 35.55 27.197 Facilities+ CAPEX Drilling+CAPEX M$ 124.5 0.47 8.145 29.5 0.70 35.013 102.70 35.5 46.5 0.70 35.5 0 1576.55 179.875 30.394 419.325 298.000 1.5 0.70 35.692 145.063 26.210 1.750 0.75 54.75 54.75 54.76 17.127 76.046 2.750 0.70 35.45 17.70 35.308 406.967 436.70 35.9 27.75 43.75 54.218 7.5 0.0 150 150 150 150 150 150 150 150 150 150 120.279 122.75 54.5 0.640 72.7 140.758 100.725 25.78 28.493 100.859 2.9 6 2.825 630.000 1.8 14.75 54.140 262.496 27.70 35.177 50.159 333.5 24 48.810 123.5 0.212 78.000 1.505 123.89 7.534 420.70 35.44 268.1 20.659 236.363 14.5 0.603 79.70 35.9 1.77 51.70 35.46 26.19 1.272 15.032 106.77 43.53 35.842 230.75 54.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX E: Economic model input data ! 2006$2035 Date Year Days 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 122 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 365 Daily Production* MBOPD Total 2.187 12.014 28.70 35.843 96.70 35.847 3.187 12.75 54.907 106.187 12.2 73.70 35.000 0.878 81.000 1.029 24.865 17.5 0.654 100.187 0 0 0 0 0 0 0 0 0 0 Total CAPEX M$ Training+ Fund+ M$ 124.08 14.641 309.70 11.748 54.750 0.75 54.370 427.51 40.5 0.5 0.70 35.196 73.764 440.1 111.70 35.149 Operating Costs M$ Price $/BOE 53.72 22.06 0.8 38.70 31.59 5.5 0.70 35.869 366.622 10.619 272.425 M$ 0 106.210 130.44 3.750 0 1961.315 184.049 176.801 24.750 0.5 0.5 0.159 248.10 54.5 0.750 0.645 141.5 0.309 15.5 0.5 0.405 107.62 922.5 0.7 Real+values+ Yearly Production MMBO 0.236 127.718 101.132 73.014 47.5 0.750 0.748 123.239 432.5 0.361 27.563 72.70 35.614 519.037 363.5 0.2 61.019 23.70 35.9 9.70 35.

12 0.26 72.825 630.72 131.000 0.473 363.000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Excess M$ 0.185 314.761 287.000 0.875 3.000 0.750 0.935 588.75 54.06 A125.907 106.08 274.276 914.31 5.12 948.630 547.21 411.984 1.415 3.75 54.5 0.19 1.462 35.896 2385.488.141 4.5 0.052 3.293 17.43 6.108 3.16 0.218 10735.923 5.315 640.63 72.11 41.00 80.742 431.603 80.5 0.607 41.31 5.449 159.37 416.8355 811.241 3.654 100.06 2.878 76.24 5.149 Cumulative/ Production MMBO 0.57 956.06 2.835 52.159 248.61 411.00 1.75 918.493 3191.67 79.385 542.394 419.350 3.855 142.464 877.76 17.39 0.469 95.000 0.00 80.599 516.69 614.307 313.400 213.94 77.706 39.278 412.63 72.751 174.440 268.439 730.639 1.22 0.00 1.798 2738.000 0.536 232.632 66.778 605.94 77.37 A354.844 236.63 72.537 121.910 ! .634 637.14 0.91 0.892 412.68 428.952 199.11 0.63 72.435 260.111.667 440.308 406.63 72.63 72.830 188.440.15 0.040 Opening M$ 0 126.638 4890.000 0.701 1772.622 10.31 5.685 205.305 3.00 1.005 2.63 72.5 0.912 393.023.5 0.68 0.94 77.891 406.861 1.217 744.185 742.073 459.534 411.819 249.00 1.965 315.78 412.51 0.06 2.31 5.842 230.437 563.37 953.06 2.00 80.305 3.5 0.06 2.030.636 289.00 80.240 2281.14 262.46 26.263 769.00 80.994 69.07 0.362 1240.19 411.57 376.5 0.848.00 80.434 98.000 0.239 432.434.218 7197.00 1.108 412.550 179.750 0.060 76.00 1.800.24 0.06 2.106 1577.77 61.493 3976.014 48.5 24 48.37 412.000 0.528 1630.439.619 272.145 29.86 8.5 0.00 1.536 226.691.855 142.74 15.5 0.046 2.94 77.237 15.00 1.42 0.31 5.507.75 0.00 80.788 1602.00 1.37 427.850.950 335.773 75.26 0.31 5.070 0.896 2385.912 393.994 510.95 A321.94 202.75 54.63 72.366 30.32 1.000 0.325 404.30 101.685 424.560 85.000 3538.155 A293.2985 838.000 0.437.725 537.876 501.08 26.00 80.47 6.474.819 249.31 5.06 2.845.94 77.06 2.270.63 72.039 544.252 535.371 3.34 958.368 839.00 80.399.00 80.5 0.000 0.5 0.44 948.869 366.00 0.020.932 7.47 8.63 80.5 0.896 2385.7 78.63 1.71 42.13 55.293 17.00 1.617 3.5 0.69 412.23 24.32 157.883.855 142.835 2954.67 66.269 222.45 335.981 239.94 77.027.5 0.000 0.858 585.73 552.896 2385.866 413.00 1.435 698.47 0.218 Recovered2 Cost2oil M$ Unrecovered M$ 9.636 909.06 2.00 1.000 177.435 479.844 535.462.521.3 86.5 0.32 0.05 1.00 1.264 27.94 77.052 330.843.9 27.75 43.405 108.89 7.00 1.443.257 540.001 1.61 2.75 54.221 131.159 2.605 3.896 2385.087 1371.272 204.743 3.896 2385.213 429.9 6 2.62 950.200.00 80.00 80.00 1.578 484.000 0.013 102.127 3.64 4.496 27.014 47.000 0.185 533.860 4.459 159.62 529.000 0.725 537.167 1.129 12.00 80.390 15% ! ! ! ! ! ! ! Contractor// Contractor/CASH/ Revenue Flow Discount/factor Profit/Oil 61! 126.693 412.469 3424.737 116.06 0.00 1.31 5.31 5.372 10.57 77.493 100.00 1.764 440.06 2.012 2.293 1.000 0.603 80.00 1.073 459.233 457.7 140 150 150 150 150 150 150 150 150 150 150 120.50 111.5 0.31 5.304 348.75 54.94 77.956 791.419 0.611 2.00 1.701 10% Government2 Profit2oil2 M$ 5.00 1.31 5.28 920.7445 901.100 0.451 1.06 2.06 2.850.228 108.8 38.5285 922.18 7.000 0.493 3976.918 561.308 58.447 2.06 2.00 1.257 540.712 34.26 61.5325 30.725 537.842 1.000 1.75 54.52 65.122.5 46.5 0.791 110.06 2.5 0.709 118.14 946.63 72.09 A3.641 309.454 3.5 0.63 72.038.00 1.284.976 292.493 3976.048.786 338.277 533.405 107.22 76.678 62.63 72.000 0.786 338.30 360.842 808.08 954.31 5.6665 918.31 5.7 Yearly/ Production/ MMBO 0.31 5.0165 860.000 0.29 0.20 0.63 72.876 501.94 77.00 1.020 1.361 186.64 102.45 17.000 0.667 51.022.039 1.799.39 M$ M$ 0.000 0.584 27.94 77.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX F: Economic model calculations CAPEX OPEX Brent 1 1 1 2006$2035 Year Daily/ Production/ MBOPD 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Total 2.493 3976.1 20.337 119.644 1.998 262.7725 12.14 72.70 76.405 108.77 61.874 416.71 104.974 132.578 484.00 1.436 46.725 25.31 5.94 77.778 605.372 10.699 516.666 1031.550 27.852.00 1.304 348.000 1.435.31 Field/ Realized/ Price Inflation/index Total/Capex Total/Opex Abandonme nt Cost/oil Total/costs Training/Fund Gross/Revenue Multiplier2 $/BOE M$ 53.252 535.469 811.026.716 76.17 7.511 1.755.94 77.19 435.5 0.429.000 0.5 0.68 809.5 0.06 2.35 4.493 3976.898 1.72 22.678 63.04 513.5 0.475 26.462 35.385 542.159 333.713 411.93 1.39 412.478 2285.97 2.317 978.70 31.95 37.216 3.393 346.039 544.786 304.00 1.095 1164.443.00 80.63 72.58 292.039 544.158 1940.78 28.879 45.678 63.069 30.941 711.143 28.16 866.732 4.05 62.06 2.017.00 80.5 0.822 Gross2RevenueA2 Recovered2cost2 oil Multiplier2 M$ % 6.585 150.75 54.94 77.505 123.420 551.277 533.000 0.758 100.44 172.619 1.362 601.529 58.719 90.493 3976.742 488.857 1.5 0.06 2.00 80.748 54.891 406.493 3976.00 80.844 535.819 249.31 5.293 17.5 0.000 0.8145 99.26 452.091 23.08 0.09 0.5 0.304.131 779.340 16.47 921.315 184.44 3.1 111.439 730.252 535.139 350.534 420.0 15 16.896 2385.912 393.08 14.228 914.30 90.2 73.844 535.06 56.149 Brent/Price $/BOE 54.03 411.145.06 2.750 0.603 80.372 10.685 643.5 9.471 M$ 10.599 516.339 1.51 40.000 0.4 103.29 110.86 729.120.171 1.56 % 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% Gross2 revenue2*2 multip M$ 9.251 2.277 533.06 2.77 51.081.00 1.8 14.06 2.35 0.052 1.20 9.063.631 2.361 186.20 219.56 0.840 128.18 0.473 363.440.946 A292.9 1.94 77.755 16.06 0 0 0 10.079 1643.940 173.000 0.768 3.00 1.51 14.049 176.31 5.581 2.210 1.328.057.603 79.06 2.59 5.995.630 547.63 138.798.09 M$ A125.678 63.719 5.06 2.286 966.263 946.385 542.00 80.892 3.849 58.718 101.236 3.127 27.94 77.767 59.919 3.838.75 54.191 614.196 73.645 141.546 891.786 338.493 3976.935 369.218 10735.83 0.000 Cost2year M$ 136.227 1.00 Oman/official/ price $/BOE 53.189 412.31 5.06 0.235 3976.47 95.118 M$ M$ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 136.000 0.750 0.63 72.361 186.171 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% Contractor2 Profit2oil M$ 0.014 48.941 2385.75 54.236 127.432.363 3.896 1915.63 72.256.21 121.541 131.163 415.368 839.399 618.63 72.630 547.257 540.000 0.26 287.311 1.35 72.876 501.858 585.5 0.80 4.037 363.543 16.00 80.000 1.00 1.31 5.475 26.841 580.31 2.462 35.781 5708.778 605.31 5.014 48.507 34.272 M$ 11.5 0.26 111.100 0.00 80.507 1.407 394.63 72.94 77.473 961.48 238.188 191.31 5.098.5 0.770.62 90.896 2385.63 72.95 109.67 66.06 2.330 51.31 5.10 54.63 72.94 77.787 10.31 5.62 922.000 0.10 0.237 718.00 124.63 72.967 436.39 97.94 77.9 9.840 128.441 202.135 2.94 77.00 1.63 72.70 Contractor/ CASH/Flow/ Discounted M$ 1.109 144.000 0.636 289.77 459.864.35 1.405 108.374 267.317 3.999 157.62 0.614 99.336 289.309 7.841.94 77.03 58.543 514.875 30.2 61.94 77.649 3.901 96.067 69599.858 585.94 Oman/Blend/ differential Quality/Bank/ Differential $/BOE / $/BOE 0.00 80.473 961.475 26.00 80.55 626.000 0.75 3.40 17.94 77.636 289.783 2934.233 457.182 7.839.08 0.897 181.027.261 922.

06 0.538 Abandonmen t Net:cash:flow $M 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 15 $M 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 =126 =321 =355 553 460 292 514 614 411 411 413 412 412 412 412 412 416 335 287 239 202 173 131 110 76 58 41 27 15 7 4 7.5 46.0 150.1 20.2 61.0 150.0 150.04 Payback$(years) Capex$per$bbl Opex$per$bbl 2005 Brent$price 80 from$2013$onwards 2006=2012$historical$prices 4.0 120.4 103.59 5.02% $3.049 ! ! ! ! ! ! 62! .77 51.038 867 809 1.5 24.46 26.7 78.200 959 956 946 949 950 954 953 949 919 730 627 529 452 360 274 219 157 122 90 63 42 25 14 17.0 150.31 3.80 Daily: Production: Year MBOPD 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Total 2.61 2.95 37.45 17.75 54.282 IRR$(%) Max$Exposure$(M$) Discount$rate Base$year$ Values$ discounted$ 44% 802.75 54.197 CAPEX Training:Fund $M $M 124 405 631 367 230 269 273 179 128 124 106 103 101 101 101 100 74 30 29 28 27 2 1 1 1 1 1 1 1 1 0 3.75 54.799 Cost:oil: Profit:oil OPEX $M $M $M 10 128 348 961 770 517 606 586 547 544 533 536 537 542 541 536 502 394 339 290 249 187 142 109 81 63 48 35 26 17 10 10.47 8.75 54.75 54.735 1 10 28 77 97 293 514 615 412 412 413 413 413 412 412 413 417 336 288 239 203 173 132 111 77 59 42 27 16 7 4 7.1 111.8 14.5 9.9 6.8 38.84 $7.120 1.0 2.0 48.2 73.0 150.0 150.0 150.0 150.75 54.7 Yearly: Contractor:Net: Production: Revenue MMBO 0.89 7.75 54.20 9.7 140.0 150.9 1.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX G: Economic model output ! 2006$2035 100%$Equity$Net$Position Real$terms:$No$Inflation$ Indicators Assumptions NPV$(2005=2035) 2.08 14.75 43.19 1.9 27.72 22.1 54.76 17.0 150.75 54.3 86.9 9.75 54.44 3.064 12 55 100 118 176 248 333 406 420 420 427 433 437 441 440 436 428 364 309 262 222 185 141 108 80 62 48 35 26 17 10 7.62 922 $M 11 139 376 1.78 28.51 40.5 Government$Take$(%) 10% 2005 88.70 31.

which. The profit oil constitutes to another 40% of the annual gross revenue and calculates using the terms described in the Section 5.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX H: Example of case study fiscal regime calculations The figure above shows example of the calculation mechanism. that the field price is 90. which means that the Partners will recover only the amount of the cost oil of the year and remaining will be recovered in the following years. constitutes to 60% of the annual gross revenue as a cost oil. The annual project costs (cost of the year + unrecovered costs of previous years) are higher than the cost oil of the year. according to the fiscal assumptions. ! ! ! ! ! 63! . whereas the Government share of the Profit oil is 88%. In our example.1 and it splits between the Government and the Partners.13 $/BOE. Assume. Partners share of the Profit oil is 12%.

Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX I: Economic model assumptions When developing a model for the Oman oil field case study. the following assumptions were considered: " The economic model used for calculations is the historical oil price (from 2005 to 2012).A. therefore: Oman realized price = Brent oil price – Oman Blend differential Under the Oman Blend Revenue Distribution Agreement.C " Oman case study field production crosses the 15 MBOPD threshold.00! Brent!Crude!Price! Oman!official!price! Field!Realized!Price! Figure 23 – Case study. Oman Blend is a medium sort crude oil and it is assumed that the Oman Blend differential to Brent price is 2. the following assumptions were made: Oil price assumptions In order to exclude the impact of market conditions on oil price variations. it will begin making quality bank payments which in the model is assumed 5.06 $.O. once the S.00! Historical!price! Forecasted!price! $/bbl% 100. and based on a “poor” oil quality relative to the Oman Blend.00! 2005! 2006! 2007! 2008! 2009! 2010! 2011! 2012! 2013! 2014! 2015! 2016! 2017! 2018! 2019! 2020! 2021! 2022! 2023! 2024! 2025! 2026! 2027! 2028! 2029! 2030! 2031! 2032! 2033! 2034! 2035! 60. Table 10 – Case study oil price assumptions (forecasted) ! ! ! ! ! 64! . for onward years (2013-2035) it is assumed that the price would be steady and the same for all three case scenarios (Figure 23): Oil%price%assump0ons% 120.00! 80.00! 40. oil price assumptions " Oman oil field realized price was calculated as: Field realized price = Brent price – Oman Blend differential – Quality Bank differential " " Brent crude is one of the leading benchmarks of sweet light crude oil and the price was assumed as 80 US$ per barrel ($/bbl).31 US$ per barrel.

Cost Recovery Oil = 60% Net Production. Calculations of contractors’ revenue and cash flow are assuming 100% equity. Cost Recovery Oil = 70% Net Production.94 72. No royalty or taxes were applied. All oil that has been produced is sold. Table 11 – Terms of profit oil calculations Field Realized Price Government Share of Partners Share of (US$) Profit Oil (%) Profit Oil (%) FRP <=$20 80% 20% $20 <FRP <=$40 100% - (15+(5*( (15+(5*( !"!!"# !" )))% $40 <FRP <=$50 100% . Other assumptions: " " " " " " " ! ! Discount rate for calculations of discounted cash flow is assumed as 10% and the base year is 2005. thus no inflation was applied.(12+(3* FRP >$50 88% !"!!"# !" )))% (12+(3* !"!!"# !" !"!!"# !" )))% )))% 12% Appendix H provides an example of calculations based on cost oil and profit oil mechanism. all capital and operating expenditures required to implement the proposed development plan are to be borne by all investor partners and subsequently recovered through sales of “cost recovery oil”. “Cost recovery oil” is linked to the realized market price for Oman crude during a calendar year by the following relationship: If Field Realized Price <= $25/bbl.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Brent official price Oman realized price Field realized price $/bbl $/bbl $/bbl 80 77. is then split between the Government of the Sultanate of Oman and the Joint Operating partners according to the terms outlined in the Table 11. The remaining “profit oil”. together the “remaining cost recovery oil” after expenditures are recouped. ! ! ! 65! . Abandonment costs are considered in the “Case Scenario 3”. Model is not taking into consideration leap years for calculations of oil yearly production. If Field Realized Price > $25/bbl.63 Fiscal assumptions Under the terms of the PSA. Costs for abandonment are not being considered in the “Case Scenario 1” and “Case Scenario 2” due to the absence of such information from operator. Calculations of all three case scenarios were made in real terms.

Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX J: Summary of Case Scenarios (input and output variables) Input variables Case Scenario Year of reaching the peak production (150 MBOPD) MBOPD Length of maintain the peak production Cumulative Oil Production (2006-2035) Total Expenditures Years MMBO $M Case Scenario 112 2012 10 922 10.050 Case Scenario 2 1.013 Case Scenario 3 1.600 Partners’ Cash Flow $M 7.790 5.242 Case Scenario NPV IRR Gross Revenue Case Scenario 1 $M 2.451 Output variables !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 12 ! ! Target values according to the original project plan ! ! ! 66! .282 % 44 $M 69.405 22 66.943 6.164 20 63.713 Case Scenario 3 2014 2 850 18.735 Case Scenario 2 2013 6 889 16.

Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX K: Application of RBS tool to the Oman oil field project % % %% ! ! ! ! ! 67! .

highly competitive market.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX L: Benchmarking of risk factors (oil and gas majors) EXXONMOBIL BP SHELL CHEVRON COMMON RISKS Market price changes Changes in oil. personal Health. and other local security concerns. acts of sabotage or terrorism. Political developments Risk of litigation and and consequent changes disputes worldwide. and environmental risk management. gas and petrochemical prices and changes in margins on refined product Fluctuating prices of crude oil and gas Fluctuating prices of crude oil. Risk to the operating of Social Instability environment. Process safety. oil products and chemicals Changing in commodity prices Socio-political risk Security concerns such as civil unrest. Risk of Climate Change -------------- -------------- Climate change and Climate change concerns carbon pricing Risk of Failure in Project Delivery -------------- -------------- Risk of failure to Delivery of large and deliver major projects complex projects successfully Risk in R&D -------------- Risk in success of research and development Risk of failure in development and deployment of new technologies Joint ventures and other contractual arrangements risk ! ! ! -------------- ! Political instability -------------- ! 68! . regulatory environment and law Health. environmental risks Risk of Competition -------------- ------------- BP’s group strategy Ability to achieve strategic depends upon objectives depends on how continuous innovation company reacts to and efficiency in a competitive forces. natural gas. business controls. safety. security safety and and environment risks. safety and environment risks Safety.

Project Management Methodology and Tools for Oil Field Development: from investor point of view ! For projects in which we company not the operator. -------------- OTHER RISKS Risk of poor project management Risk of failure in successful recruitment. it depends on the management effectiveness of one or more partners whom it does not control. ------------- -------------- ! ! ! ! ! 69! . Joint ventures risk -------------- Information Technology Risks -------------- Risk of breach in digital security Shell relies heavily on information technology systems in its operations. Risk of failure in ability to operate within established financial framework Global macroeconomic environment as well as financial and commodity market conditions. BP may not have full operational control and may have exposure to counterparty credit risk and disruptions to our operations and strategic objectives due to the nature of some of its business relationships. development and utilization of staff Risk of erosion of the business reputation Risks of operations disruption by natural forces or human factors Risk of failure in operational efficiency. Risk of failure in success of developing resources -------------- Risk in failure to accurately report the data -------------- -------------- -------------- Risk in failure to meet product quality standards -------------- -------------- -------------- Drilling and production – these activities require high levels of investment and are subject to natural hazards and other uncertainties.

can have a direct impact on project’s profit and Parties cash flow with a consequent effect on value of the project. However. ! ! ! ! ! 70! .ExxonMobil. BP.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX M: Identified risk factors (2014) In order to estimate a list of risk factors for the following year. The oil price. gas and product prices and margins can be very volatile. We believe. mentioned below. leading to lower demand and lower oil and gas prices” (Annual report 2012. The negative change in oil price can affect the validity of the project assumptions that were used for making strategic decisions and a result is no longer appropriate. Political developments (including conflict situations) and the outcome of meetings of OPEC can particularly affect world supply and oil prices”. organizational and project management – that in our opinion can complement the operator list risks in new field development plan of 2013 and to prepare the adequate response plan. Risk of failure in successful recruitment. We estimated that the major technical risks from Appendix D will remain the same and some additional risks may arise. cash flows as well as the value of the project. Risk of failure in project delivery. We would like to bring the operator attention to the variety of risk categories that are typical for the projects in oil and gas sector and can’t be ignored or underestimated. In particular. according to BP. development and utilization of staff. Risks of operation disruption by natural forces or human factors. Health. Risk of poor project management. lower than expected. Along with technical risks. and series of interviews with experts of “Partex Services Portugal”. ongoing instability in or a collapse of the Eurozone could trigger a new wave of financial crises and push the world back into recession. shareholders’ revenue. Contractual arrangements risk. safety and environment. and are subject to international supply and demand. The recommended complementary risks for Oman project are: " " " " " " " " Market price changes. Market price changes The financial performance of oil and gas project depends on a fluctuating price of oil in the market and can strongly affect profitability of company’s operations. BP). this risk can’t be mitigate or be avoided as. we used several techniques such as analysis of project historical data. Risk of failure in ability to execute and operate within established financial framework. benchmarking of major international oil and gas companies . we would recommend to take into consideration risks from other categories – external. “The global financial and economic situation may also have a negative impact on third parties. Shell and Chevron (according to Forbes “The World’s 25 Biggest Oil Companies”). can affect project performance. that the potential impact of any of the risks. “Oil.

The particular factors that can influence the successful performance of the projects are: correct estimation of project assumptions. Contractual arrangements risk The Oman project is conducting through contracting and sub-contracting agreements. The financial framework for Oman project is being established annually in a Work Program and Budget report. we can propose to Operator to review internal HR policies. This can explain the complexity of decision-making process and the fact that operator in execution of the work is relying on third parties. Health. Risk of failure in ability to operate within established financial framework. development and utilization of staff. ! ! ! ! ! 71! . Contractors and sub-contractors are “primarily responsible for the adequacy of the human or technical competencies and capabilities which they bring to bear on the project and. potentially threatening the viability of the project”. adequate engineering and other capabilities and therefore successful recruitment and development of staff”. However. safety and environment risks The nature of the project exposes it to the risks concerned with personal and process safety and health. among other things. trying to mitigate this risk by hiring fresh graduates. as “inability to develop human capacity and capability. The occurrence of these risks can lead to the increased costs as well as to damaging the reputation of the Parties involved. Operator may not be able to meet his financial or other project targets. both across the organization and in specific operating locations. We noticed that the problem of insufficient human resources Operator is facing each year. That’s why we believe this risk should be included in Operator risk factors. Risk of poor project management The oil and gas projects require a high degree of project management involvement in order to maximize project’s efficiency.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Also the negative impact on a financial performance of the project can be caused by variations in prices for chemicals and materials that supply project’s operations. and effective management of project’s costs. Successful implementation of the project plan heavily depends on availability of qualified human resources and failure to deliver major project milestones can negatively affect Parties’ financial performance. According to BP. “successful project delivery requires. Risk of failure in project delivery. Risk of failure in successful recruitment. The inability to operate and execute the project in a pre-defined budget can increase the operating and capital costs as well as negatively impact the shareholders’ revenue. budget and schedule. compensation benefits and working conditions. could jeopardize performance delivery” (Annual report 2012. in the event these are found to be lacking. BP). training interns and bringing expatriates home.

The human factors can include war. political instability. this is exposing a project operations and facilities to a risk to be negatively affected by natural causes in future again. terrorist attacks or other factors that can harm the project implementation. The sand storms and hurricanes occurred several times during the Oman oil field project execution. Thus.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Risks of operation disruption by natural forces or human factors Oman is located in he southwest Asia and has a very hot climate with a lack of rainfalls. ! ! ! ! ! 72! .

40 15-20% OPEX increase 0. Health.56 schedule target 10. Inability to achieve bottomhole pressure High /.70 Medium 0.1 Risk of poor project management (Production rate) 13.90 High 0.12 15-20% OPEX increase 0. Well construction slippage Medium /. Industrial labor dispute High /.30 Medium 0.70 High 0. Contractual arrangements risk 13. 9E (turbine) shutdown Medium /. Change in Oman Labor directives (recruitment. Oil price changes 11.70 Very High 0.06 5.80 >20% OPEX and CAPEX ! ! 73! . contract costs.40 20-40% OPEX increase 0.20 8. etc.14 9. Inability to achieve target vertical injection conformance High /.40 High /.56 6.28 4.40 >15% volume decrease Very High /.20 5-10% time increase 0.70 Very High 0.20 5-15% CAPEX increase 0.06 Very High /.36 2.40 >15% volume decrease 0. safety and environment risks 12.40 15-20% OPEX and CAPEX increase 0.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX N: Qualitative analysis of identified risks (2014) N Risk Impact on an objective Consequences on an objective Probabilit y of occurrenc e Risk Natural Language Expression Risk Numer ic score 1.12 0.40 10-15% volume decrease 0.20 5-10% volume decrease 0.80 >20% oil price decrease 0. Risk of poor Infill Drilling performance Medium /.50 High 0. Risk of poor Steam Quality Medium /.30 Medium 0.40 15-20% CAPEX increase 0.30 Medium 0.) High /. Risk of poor management (Cost) ! ! ! project High /.90 High 0.30 Low 0. Operational up-time less than expectation High /.20 5-10% volume decrease 0.12 7.2.30 Medium 0.50 High 0.18 3.

20 5-15% OPEX increase 0.70 Medium 0.40 >20% OPEX and CAPEX increase 0. development and utilization of staff Medium /. Risk of failure in ability to execute and operate within established financial framework High /.14 15.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! increase 14.36 ! ! ! ! ! 74! . Risk of failure in successful recruitment.90 High 0.

000 (1 million) working hours Days away from work case frequency (DAFWCF)* Days away from work case frequency measures the number of incidents per 1. oil spills. oil spills. Tier 3 Process Safety Event Losses of primary containment above Tier 2 Thresholds Numerical value Tier 3 Process Safety Event Number of deferred start-ups and unplanned shutdowns Numerical value Greenhouse Gas Emissions (GHG) Million tones of CO2 equivalent for hydrocarbons produced Million tones of CO2 Total Vehicle Accident Rate (TVAR) Total number of all motor vehicle accidents per one million kilometers driven. from a process.000 (100 million) hours worked Recordable injury frequency measures the number of reported work-related incidents that result in a fatality or injury (apart from minor first aid cases) per 1.000 of direct cost to the Company). Tier 2 Process Safety Event Losses of primary containment. Rate Fatal Accident Rate (FAR)* ! ! 75! Rate Rate 10% Numerical value Numerical value 10% 10% . or exceeding defined quantities (ex. of greatest consequence – causing harm to a member of the workforce or costly damage to equipment. fire or explosion resulting in greater than or equal to $25.000. that resulted in an injury where a person is unable to work for a day (shift) or more Rate Near miss incidents Near miss incidents per million working hours Rate Tier 1 Process Safety Event Losses of primary containment. from a process. a fire or explosion resulting in greater than or equal to $2.Project Management Methodology and Tools for Oil Field Development: from investor point of view ! APPENDIX O: Proposed KPIs and sub-KPIs KPI sub-KPI Description Unit Weight Health. of lesser consequence (ex.000 (1 million) hours worked. Safety and Environment Personal safety performance Process safety performance Transportation safety performance ! ! ! Recordable Injury Frequency (RIF)* Number of company fatalities per 100.000.000.500 of direct cost to the Company).

Project Management Methodology and Tools for Oil Field Development: from investor point of view ! Operational Performance Hydrocarbons Production Steam Performance Drilling Performance Operating Costs Capital Employed Oil Production Rate Oil Production Capacity Crude oil produced per year Available capacity to produce crude oil MBOPD MBOPD 10% Steam Capacity Steam Injection Rate Year-end installed steam generation capacity Average annual rate MBSPD MBSPD 10% New Wells Patterns Development Well cost Wells drilled vs. Budget $ Million 7. target Actual number of steam injectors and producers vs. Budget Operating cost per barrel (target OPEX per year/target oil production per year) $/bbl 10% CAPEX Actual vs.5% OPEX $ Million Unit operating cost Actual vs. cost of the prior year Numerical value Numerical value Rate 7. % 10% Milestones missed % of corporate milestones that didn’t met the target set in the annual Work Program and Budget % 10% Operating Cash Flow Net cash flow provided by operating activities $ Million 10% % of fired employees /total number of employees % Recruitment rate % of Recruited vs Planned % Omanization % of Oman national recruits % Employee Training rate Hours of Training per Employee Rate Project Performance Strategic Performance Financial performance Human Resources HR availability and People Development Employee Turnover rate ! ! ! ! ! 76! 10% .5% Project Delivery Capability to complete the project on time and within budget on the basis of targets set in the annual Work Program and Budget. target Current well cost vs.